The euro rose above the 1.18 level against the dollar, as predicted, the nearest target is 1.1885. Bulls of the most popular pair of the Forex market rub their hands in anticipation of profits in long positions in the euro. The exchange rate is rising on Tuesday, despite the latest portion of unpromising data on the eurobloc. The unemployment rate in the euro zone did not fall to 8.1%, as analysts expected, but remained at the same levels. The number of unemployed increased by 48,000.
The picture for the European currency is due to the current correction for the US currency. Analysts advise not to rush, but to treat the strengthening of EUR/USD skeptically and with caution.
It is assumed that the euro may strengthen, even against the dollar, on the increase in the forecast of global economic growth of the International Monetary Fund. According to the new estimates of the fund, global GDP will expand by 6% this year, not by 5.5%, as previously predicted. The US and China will be the drivers of growth. At the same time, the US economy should reach pre-crisis growth indicators.
Nonetheless, the EUR/USD pair's growth will be limited. It is hardly worth ignoring the fact that vaccination in the United States is going faster, while the situation with the coronavirus in the eurozone remains tense, moreover, lockdowns persist and even increase. The American economy is stronger than the European one and will recover faster, it became obvious to everyone. The economic indicators are convincing: A strong March report on the number of jobs outside agriculture was released the day before, and the PMI in the service sector in March rose to 63.7 from 55.3 in February.
Meanwhile, the improving economic outlook will not force the Federal Reserve to raise rates for the foreseeable future. Despite the fact that the economic picture for America is quite good, and it should be even better, the country is still far from the targets, said the President of the Federal Reserve Bank of Cleveland, Loretta Mester. Some market players continue to bet that the increase in inflation will force Fed officials to tighten policy ahead of time. This will finally confirm the reversal of the downtrend in the US currency.
On Wednesday, the focus will be on the publication of the minutes of the Fed's March meeting. The documents are likely to reflect the expectations of most senior members of the central bank of the near-term acceleration of inflation. If market players notice even small movements towards curtailing the stimulus program, then the dollar will receive another strong support. Recall that the yield on government bonds has stabilized in the region of 1.700% amid rapid vaccination rates in the United States and due to the outpacing growth of the economy, especially in comparison with the European economy. The dollar has the potential to grow in the short term.
The dollar is losing ground on Tuesday as traders take profits. The beginning of discussion of Biden's new plan to inject more than $2 trillion into the economy also contributes to the downward trend. This is despite the fact that it is expected that expenses would be paid by increasing taxes. However, everyone is well aware that the final consumer will still pay for the tax increase, which is another reason to fear inflation in the long term.
If the enthusiasm of the stock markets against the background of the prospects for higher taxes looks somewhat out of place, then the reaction of the dollar is quite natural. However, there is no talk of a reversal of the trend in the dollar right now. This is a sign that the new support programs are no longer playing on the dollar's side.
The dollar index, from a technical point of view, is stuck against the background of Biden's plan at the 200-day mark. It is quite possible to form a local high right now. In this regard, the 1.17 level may receive the status of medium-term support.
