The EUR/USD pair began the new trading week quite calmly, continuing last Friday's flat fluctuations. The price fluctuates in the range of 1.2155 - 1.2190, gradually starting from its borders. During today's Asian session, the US dollar index showed similar dynamics – an equally impulsive and short-term decline replaced the impulsive, but extremely temporary growth. And although the index is still above the 90th mark, the upward trend is limited to 90.3.
All this suggests that the currency market is waiting for information drivers. Today, there will be hardly anything on the economic calendar for the EUR/USD pair. The only thing that can cause investors' interest is the speech of ECB's head, Christine Lagarde. She will speak twice during the day at various specialized conferences (Frankfurt and Davos). However, this fundamental factor will only have limited influence. Just last Thursday, the January meeting of the European Central Bank was held, wherein Lagarde has already outlined her opinion on the prospects for monetary policy. She made it clear that the regulator will maintain a wait-and-see attitude in the near future, given the December expansion of QE. Therefore, it is unlikely that her rhetoric later about the prospects for monetary policy will differ from the one she mentioned earlier.
Tomorrow, the United States will publish its main macroeconomic reports, namely its consumer confidence this month. This indicator has been declining continuously from October to December, dropping from 101.4 to 88.6 points. Based on experts' general forecasts, the indicator will continue its downward trend until 86 points. This fact will put some pressure on the US dollar, as it will reflect the decline in American consumer activity. It is also worth recalling that the United States published poor data on retail sales in mid-January, followed by a quite weak data on the growth of US inflation. If the consumer confidence indicator also enters the "red" zone (with a weak forecast), then the dollar may decline under a wave of sales.
Nevertheless, the main fundamental events for the EUR/USD pair will unfold in the second half of this week. On Wednesday evening, the results of the Fed's first meeting this year will be known. On the one hand, this regulatory meeting is likely to be ignored. There is an extremely high possibility that the Fed will leave all the parameters of monetary policy unchanged, given the previous rhetoric of Jerome Powell and his colleagues. On the other hand, this will be their first meeting after Joe Biden's inauguration, Yellen's appointment to the post of US Treasury Secretary and the presentation of an almost two-trillion dollar aid package (American Rescue Plan) for the US economy. Thus, we still don't know what will happen.
In the light of recent market developments, there are a lot of rumors that the Fed will immediately turn down stimulus programs, which were adopted last year amid the political conflict between Republicans and Democrats. For six months, politicians could not agree on a much needed bill for the American economy. Currently, the situation has dramatically changed: Democrats control both houses of Congress, while Biden's proposed aid package involves the allocation of 1 trillion 900 billion dollars. Due to this, there was a talk of curtailing the Fed's stimulus. Rumors began to spread in the market that the Fed may curtail emergency measures almost at the end of this year amid vaccination and broad fiscal stimulus. Some analysts even assumed that the regulator will consider raising the rate in early 2022. However, Powell's recent speech should be recalled. On January 15, he made it clear that such assumptions are not true. According to him, it is not yet time to talk about any curtailment, as the Fed's goals are still too far from being achieved. He also said that the regulator is ready to tolerate inflation above the 2% target level, without tightening the parameters of monetary policy. We can assume that he will voice similar rhetoric at the January meeting, which will put more pressure on the US dollar.
On Thursday, all the attention of EUR/USD traders will be focused on the release of data on the growth of the US economy during last year's Q4. According to preliminary estimates, US GDP will increase by 4.2% after a recorded growth (33%) in the third quarter. It can be noted that in the second week of January, the New York Federal Reserve revised its forecast for this indicator upwards. The basis for the revision of the estimates was the reports on industrial production and capacity utilization. On the other hand, US retail sales declined significantly before 2020 ended, so the intrigue remains here. If this main data is released in the "red" zone, dollar bulls will lose another trump card for their recovery.
But on Friday, the EUR/USD pair will respond to the main personal consumption expenditure index, which measures the core level of spending and indirectly affects the dynamics of US inflation. It is believed that the members of the regulator monitored this indicator with particular bias. According to forecasts, the index will show contradictory dynamics – it is expected to slightly rise to 0.1% in the monthly terms, while it might decline to 1.3% in annual terms. This release may have a significant impact on the US dollar's position.
In terms of news background, everything will circulate around the above-mentioned aid package for the US economy. This bill is currently undergoing preliminary hearings. National Economic Council director Brian Deese (one of President Joe Biden's top economics aides) will lobby for the adoption of this document in Congress. Republicans, in turn, have already expressed criticism, hinting that they will not support Biden's plan. Considering the political alignments in both houses of Congress, the market may ignore their position. At the same time, it is necessary to listen to the opinions of Democratic congressmen (especially senators) regarding this plan. The fact is the Democratic Party needs all the votes of the Democrats in the Senate and the vote of the US Vice President, Kamala Harris in order to pass the bill. So if any of the Democratic senators criticize this plan (which is unlikely), the market will significantly increase volatility, favoring the dollar. The US currency will be used as a protective asset again, regaining lost positions.
However, there is a low probability that such a scenario will happen. In my opinion, the buyers of EUR/USD will be able to continue their attack in the next few days and approach the main resistance levels. They need to break through the resistance level of 1.2200 to continue the upward trend, as in this case, the pair will initially be between the middle and upper lines of the Bollinger Bands indicator on D1, and secondly, the Ichimoku indicator will form a bullish signal "parade of lines", in which all indicator lines will be below the price.
From a technical point of view, the path to the next major resistance level of 1.2330 (upper line of the Bollinger Bands) will be open. Therefore, it is possible to open longs from the current positions to the level of 1.2200. After breaking through this target, we can continue to the level of 1.2330.
