The EUR/USD pair continues to trade in the 1.1850-1.1910 range, alternately breaking through the borders of the price range. Traders are waiting for information drivers that could push the pair to one side. The start of the week turned out to be quite depressing in this regard. The euro received little support from the data on the volume of retail trade in the eurozone countries. In monthly terms, the indicator came out at around 3.0%, leaving the negative area. In annual terms, the indicator remained below zero, but went to the level of -2.9% (from the previous value -5.4%). However, this fundamental factor had a temporary effect on the pair. The February data are outdated, while more operational indicators indicate a slowdown in European consumer activity.
In turn, the US currency ignored the comments of the Chairman of the Fed St. Louis, James Bullard. In fact, his rhetoric largely repeated the rhetoric of the Fed Chairman, Jerome Powell, so market participants were not surprised. The members of the regulator unitedly commend the US economy, which is actively recovering from the coronavirus crisis. According to them, this process will only accelerate in the second half of the year, as government programs are implemented to help and vaccinate the population against COVID-19. Theoretically, such optimistic rhetoric should strengthen the dollar's position, if not for one "but": the Fed members, noting the progress of the recovery process, add every time: it is still very early to talk about an early curtailment of QE or an increase in the interest rate. This remark does not support the dollar bulls.
Nevertheless, the favor is still on the side of the US dollar. During today's Asian session, the dollar index rose almost without a pullback, regaining lost positions. The US dollar followed the yield of 10-year treasuries, which also shows a positive trend. All this is due to two factors: the expectations of today's inflation release and the discussion of the prospects for Joe Biden's massive infrastructure plan.
In terms of inflation, experts are optimistic. The overall consumer price index has been gradually growing on a monthly basis for two months now (in February, the indicator came out at the level of 0.4%). In March, a minimum increase is expected up to 0.5%. But in annual terms, the indicator may show a more serious growth, rising from 1.7% to 2.4% immediately. If we talk about the core index (excluding food and energy prices), then the indicator should also come out in the "green zone" (+0.2% mom +1.5% yoy). However, the above figures are already partially embedded in current prices, so the EUR/USD bears need a more powerful inflationary breakthrough. If the data is released at the forecast level, the pair may react quite "formally", falling to the middle of the 18th figure.
But to further develop the downward trend, sellers need to consolidate below the level of 1.1850 (middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line). On some macroeconomic reports, it is difficult to make such a breakthrough, especially given the Fed's position. The essence of which is that the regulator is ready to "tolerate" a surge in inflation (and the economy as a whole). Therefore, traders need a more strong fundamental argument to resume the downward movement.
This week, Congressmen are returning from spring break, and they will begin to consider an infrastructure modernization program totaling $ 2 trillion 600 billion in the near future. Earlier, some Democratic senators have already expressed their dissatisfaction with this bill. The issue was the corporate tax rate, which is planned to be increased to 28%. The Republicans, in turn, propose a more radical change in the form of implementation of this economic plan. According to the American media, they advocate a more targeted approach to infrastructure development. In this case, individual large-scale projects would be financed not through higher taxes, but through user fees and tax incentives.
As the Voice of America notes, joint policy consultations will be held at the White House this week: the White House is seeking bipartisan support. According to journalists, the negotiation process with the Republicans will last approximately until mid-May. If the parties do not reach a compromise, the White House will launch an alternative scenario, which involves a mechanism for budget reconciliation. In this case, the Democrats will be able to approve the initiative of the White House by a simple majority, which they have in both houses of Congress. At the same time, Biden will not be able to afford to lose the votes of anyone among the Democratic congressmen, since their advantage in the House of Representatives is not large enough, and in the Senate, it is minimal (a margin of only 1 vote). Therefore, the presidential administration will have to take into account the demands of its fellow party members.
Thus, the US currency may receive situational support from the inflation release today, but this fundamental factor is unlikely to serve as a reason for the decline of the EUR/USD pair to the base of the 1.18 mark (only in case of a significant excess of the forecast values). For the development of the downward trend, sellers need to go below the level of 1.1850. To do this, the US dollar needs political support from the White House and influential representatives of the Democratic Party. If they show a consolidated position and voice acceptable terms of compromise, the national currency will resume its growth all over the market.
Technically, the downward scenario remains to be the priority for the pair. The inability of EUR/USD buyers to organize a large-scale "upward offensive" suggests that any more or less significant price increase can be used as an excuse to open short positions. The first downward target is the support level of 1.1850, which corresponds to the middle line of the Bollinger Bands that coincides with the Kijun-sen line on the daily chart.
