Euro continued to rally yesterday, even though the Federal Reserve pointed out the strong and more rapid recovery of the US economy. Perhaps, market reaction is delayed and will be apparent today, when the US releases reports for retail sales and jobless claims.
According to Fed Chairman Jerome Powell, the central bank will cutback bond purchases first before raising interest rates. Accordingly, this reinforced expectations that the current fiscal stimulus will end earlier than expected.
But the most important point from Powell's speech is that the US economy is recovering more quickly, thanks to good vaccination programs in the country. However, he stressed that the Fed will not rush to withdraw its assistance programs, at least until the US achieves more than 2% inflation and a stronger labor market.
The next meeting of the Federal Reserve will be on April 27-28, so until then do not expect loud statements from the central bank and its representatives. In turn, the position of the euro will continue to strengthen, especially since in the next few weeks, good macro statistics are expected from the Euro area, not to mention there may be positive news on the EU recovery fund, as well as on the fight against the coronavirus.
So in EUR / USD, pay attention to 1.1980, as a break above it will result in a larger jump towards the 20th figure. To be more specific, the euro may hit 1.2050 and 1.2110. On the other hand, going below 1.1953 will lead to a further drop towards 1.1920 and 1.1880.
Today, the US will release March data on retail sales, which can serve as a catalyst for a strong correction in EUR / USD. The US Department of Commerce predicts it to jump by 5.8%, thanks to faster hiring, distribution of incentive checks, a steady pace of COVID-19 vaccinations and the lifting of a number of restrictions on store operations across the country. In fact, some analysts even expect up to 10% growth, while the Bank of America projects as high as 11.5%.
If the indicator exceeds forecasts, the position of the US dollar will strengthen, which will accordingly lead to the decline of both EUR/USD and GBP/USD.
In the meantime, it is obvious that there is an active struggle around the 38th figure, since a break above or below it will determine where the pound will go today. Pushing the price above the level will result in GBP/USD jumping towards 1.3835 and 1.3880, while going below it will lead to a collapse towards 1.3700 and 1.3660.
Going back to macro statistics, the US Department of Labor reported that import prices grew noticeably last March, gaining approximately 1.2%. And from December 2020 to March 2021, prices have risen by 4.0%, the largest three-month increase since May 2011. Many expect this scenario to continue since rising commodity prices and strong base price will drive import prices higher. However, the acceleration of import inflation will only be temporary, so it will decrease in the second half of this year.
The Federal Reserve also released its Beige Book yesterday, in which it indicated that economic activity in the US accelerated to a moderate pace from late February to early April. It said that the tourism sector improved, fueled by an increase in demand for leisure and travel. Employment also accelerated, as did earnings in many districts.
With regards to COVID-19, it was reported that the vaccine from Johnson & Johnson has caused blood clots to people, so the vaccine's distribution in the US is now in limbo. Government health advisers said they needed more evidence to decide if the vaccine really caused such ailments, and if so, how much of a risk it really is. Nevertheless, vaccination of J&J's drug is now suspended.
