Current dynamics
The dollar resumed its decline during the Asian session and at the beginning of the European session. At the time of publication of this article, futures for the DXY dollar index, which reflects the value of the dollar against a basket of 6 major currencies, were trading near the 91.50 mark, 197 points below the local 4-month high reached at the end of March.
Having previously received support for several months from the growing yield of US government bonds, the dollar is again declining at present, correlating with the declining yield of US bonds. At the end of last week, the yield on US 10-year government bonds was recorded at 1.590%, against a multi-month high of 1.776% reached at the end of last month.
It seems that the dollar is no longer responding to the positive macro statistics coming from the United States, and the positive factors of fiscal stimulus and relatively high vaccination rates in the country are already taken into account in its quotes.
On the other hand, accelerating inflation in the United States against the background of inaction by the Federal Reserve, which continues to pump financial markets with cheap liquidity, as well as the huge trillion-dollar stimulus programs from the US government, create the prerequisites for further weakening of the dollar.
In the current situation, its weakening is likely to continue, at least until the Fed leaders begin to give signals indicating the imminent beginning of the curtailment of the stimulus policy. But there aren't any yet.
During the March meeting, Fed officials said that they still intend to keep interest rates near zero until the end of 2023, and did not express readiness to wind down the bond-buying program.
According to Fed Chairman Jerome Powell, the economy must "move even more significantly" towards target levels of employment and inflation before the Fed begins to cut purchases (since the end of June 2020, the Fed has been buying at least $120 billion in Treasury and contain the growth of borrowing costs). Powell said last week that, before the Fed considers raising interest rates, the central bank will first begin to reduce its monthly asset purchases. As Powell previously promised, the Fed will also warn financial market participants in advance.
This is to conclude that both the Fed and the US authorities are interested in further weakening the dollar even more, well, at least to reduce the debt burden from the trillion-dollar US national debt.
No important macro statistics are expected to be released today. The first major US news will begin to arrive on Thursday, when the country's weekly labor market data is released.
The focus of investors' attention this week will be the ECB meeting, also scheduled for Thursday, and its decision on monetary policy. The ECB's interest rate decision will be published at 11:45 GMT, and a press conference will begin at 12:30 GMT, where comments on the ECB's decision will also be given.
The euro is the main competitor of the dollar in the foreign exchange market, and the ECB's policies and decisions are carefully studied by financial market participants. It is expected that at the end of this meeting, the key interest rate of the ECB will remain at the same level of 0%. The deposit rate for commercial banks is also likely to remain at -0.5%. At the same time, there is a possibility that at this meeting, the ECB will announce a new program to stimulate the economy, which may cause a sharp increase in volatility not only in the euro quotes but also in the entire financial market.
During the press conference, ECB leaders will assess the current economic situation in the Eurozone and comment on the ECB's rate decision.
The soft tone of the statements will have a negative impact on the euro. Conversely, the tough tone of the ECB leadership's statements regarding the monetary policy of the Central Bank will strengthen the euro.
Technical Analysis and Trading Recommendations
In the meantime, the EUR/USD pair maintains positive dynamics, resuming growth at the beginning of the European session and trading at the time of publication of this article near the 1.1990 mark, through which a strong resistance level passes (local highs and the upper border of the descending channel on the daily chart).
The technical indicators OsMA and Stochastic on the 1-hour, daily, and weekly charts are on the buyer's side, signaling the preference for long positions.
In case of a confirmed breakdown of this resistance level, EUR/USD will head towards resistance level 1.2055 (EMA200 on the monthly chart). More distant growth targets are located at resistance levels 1.2180 (50% Fibonacci level upward correction in the wave of the pair's decline from 1.3870, which began in May 2014), 1.2340 (this year's highs).
In an alternative scenario, EUR/USD will resume its decline deep into the descending channel on the daily price chart.
A signal for the resumption of short positions, in this case, will be the breakdown of important short-term support levels 1.1940 (EMA50 on the daily chart and EMA144 on the 1-hour chart), 1.1926 (EMA200 on the 1-hour chart).
A breakdown of the support level 1.1910 (EMA200 on the 4-hour chart and EMA144 on the daily chart) will confirm the scenario for a decline in EUR/USD with the nearest target at the key support level 1.1840 (EMA200 on the daily chart).
The breakout of the support levels 1.1780 (Fibonacci 38.2%) 1.1710 will resume the downward dynamics of EUR/USD and direct it towards the support levels of 1.1600 (local lows and EMA50 on the monthly chart), 1.1550 (EMA200 and EMA144 on the weekly chart), and the breakdown of the level support at 1.1550 will increase the risks of a resumption of the long-term bearish trend in EUR/USD.
Support levels: 1.1940, 1.1926, 1.1910, 1.1840, 1.1780, 1.1710, 1.1600, 1.1550
Resistance levels: 1.1990, 1.2055, 1.2100, 1.2180, 1.2270, 1.2340, 1.2555, 1.2580, 1.2600
Trading Recommendations
Sell Stop 1.1935. Stop-Loss 1.2005. Take-Profit 1.1926, 1.1910, 1.1840, 1.1780, 1.1710, 1.1600, 1.1550
Buy Stop 1.2005. Stop-Loss 1.1935. Take-Profit 1.2055, 1.2100, 1.2180, 1.2270, 1.2340, 1.2555, 1.2580, 1.2600
