The euro-dollar pair has shown a correction today, following a three-day almost recoilless growth. The upward momentum faded away yesterday, as soon as the price reached 1.2180. Apparently, traders were not certain whether the pair would overcome this resistance level and settled in the area of the 22nd figure. Such doubts led to massive profit taking and short positions in hopes of a correction. The result was not long in coming: the pair did correct, but at the same time it remained within the 21st figure. However, the bears also failed to develop the downward momentum, since EUR/USD buyers were active near the support level of 1.2100 (the middle Bollinger Bands line, which coincides with the Tenkan-sen line), as if reminding us that the upward trend is still still valid.
It is noteworthy that as such there was no reason for the pair's correction today - the dollar sharply strengthened its positions throughout the market against the background of a sharp rise in the yield of 10-year Treasuries. The indicator reached 1.425% at the beginning of the US session - the last time the yield on these bonds was at this level was a year ago, in February 2020. That, in fact, is all - there were no other weighty arguments for the revaluation of the greenback. Therefore, as soon as the level of profitability began to decline, the dollar followed it, returning the gained points.
Several conclusions can be drawn when taking such price fluctuations into account. First, it is necessary to take note of the support level at 1.2100. You should keep this in mind when you open short positions on corrective declines of EUR/USD. Secondly, take note of the temporary "ceiling" of the established price range - the 1.2180 mark (the upper limit of the Kumo cloud, coinciding with the upper line of the Bollinger Bands on D1). Traders tried to overcome this target six times (!) over the course of two days– but failed each time. This suggests that there is a resistance level here, which does not allow buyers of EUR/USD to approach the boundaries of the 22nd figure. As a result, we have a relatively wide 80-point price range of 1.2100-1.2180, within which the pair has been drifting for two days, waiting for the next information impulse.
In general, the general fundamental background for the EUR/USD pair allows us to count on a succeeding price growth. Corrective downward pullbacks are technically unavoidable and even necessary in order to develop a growth trend. Price declines can be used as a reason to open long positions, indicating the nearest resistance levels as a target. At the moment, this level is the 1.2180 target, as traders have already been able to verify how stable it is.
Federal Reserve Chairman Jerome Powell put pressure during his two-day Congressional speech, but did not help the EUR/USD bulls win the 22nd figure. As part of yesterday's speech, he acknowledged that the US economy is at the very beginning of a "rehabilitation path", and it will take a long time to recover to the target levels for inflation and employment. At the same time, he admitted that the Fed can use all available levers of influence, using "the entire arsenal of monetary policy tools."
In today's speech, Powell became concerned about the dynamics of the main macroeconomic indicators. In particular, he said that the labor market is experiencing a "significant drawdown", and inflation is showing sluggish and uncertain growth. According to him, it will take more than three years to consolidate inflation expectations around the target two percent ("or slightly higher").
In other words, Powell voiced a very clear message that the current parameters of monetary policy can be changed only in the direction of easing. By the way, Lael Brainard (a member of the board of governors) also spoke today, who also voiced rather dovish comments, pessimistically assessing the prospects for rising inflation and employment indicators. According to her, the real unemployment rate in the United States currently stands at about 10% (which is much higher than the official figure of 6.3%), while the employment situation is "a key priority in determining monetary policy." As for inflation, Brainard echoed Powell's thesis almost word for word, noting that the economy is "still too far" from the inflation target. Such gloomy conclusions from the representatives of the US central bank naturally put pressure on the greenback.
And the European currency received support from macroeconomic statistics again. A report on the growth of Germany's GDP in the fourth quarter. The final estimate was better than the initial one: in quarterly terms, the indicator was at 0.3% (instead of 0.1%), in annual terms – at -2.7% (the first estimate -2.9%). This release adds to the original puzzle, indicating the recovery of the European economy. Let me remind you that before that, the IFO, ZEW and PMI indices were released in the green zone.
Thus, seeing as how dollar bulls failed to take their revenge, you can consider long positions on the EUR/USD pair - either from the current positions, or with the next corrective pullback. As mentioned above, the first target for the growth movement is the 1.2180 mark – this is the upper boundary of the Kumo cloud, which coincides with the upper line of the Bollinger Bands on D1. Overcoming this target will allow EUR/USD buyers to win the 22nd figure.
