For three consecutive weeks, the US dollar has depreciated. This currency updated the price high of the year on March 31 and began to systematically, but consistently decline, despite strong macroeconomic reports, massive campaign to vaccinate Americans and fiscal stimulus. The dollar is falling amid the implementation of the 1.9-trillion "American Rescue Plan" and the discussion of a new economic plan, whose volume should amount to $ 2 trillion 300 billion. Such an optimistic fundamental outlook at first glance is clouded by the Fed position: the regulator ruled out the option of early winding down of QE and raising the interest rate before 2023. As a result, all of the above fundamental factors were simply disregarded, while the uncertainty with the adoption of the two-trillion infrastructure plan puts pressure on the US currency.
In turn, the Euro currency received support after the release of data on the growth of PMI indices in key EU countries. It turned out that despite strict quarantine restrictions and weak vaccination rates, European entrepreneurs remain optimistic even in the service sector, although this sector of the economy is the most vulnerable during lockdowns. Thus, the euro accelerated all over the market on Friday, including in a pair with the dollar, which in turn, declined in view of Joe Biden's new tax initiatives, which will be discussed a little later.
Friday's macroeconomic reports helped the euro recover after a decline following the last ECB meeting. On the one hand, the April meeting was ignored: the regulator maintained the status quo, but at the same time, did not meet the "hawkish" hopes of some investors. The Central Bank President, Christine Lagarde, said during her press conference that the timing of the end of the stimulus program is unknown yet, while the ECB's determination in this case will largely depend on the incoming data. Therefore, the euro began to enjoy increased demand the next day after the meeting, when the market received strong PMI data. On Monday, the EUR/USD pair moves according to the inertia of Friday: the price still broke through the nearest resistance level of 1.2100 and is currently moving towards the resistance level of 1.2150 (upper line of the Bollinger Bands on the daily time frame).
The economic calendar for this week is full of events and there are several main ones among them. Today, the German indicator of business environment conditions from IFO will be published. Based on the preliminary forecasts, the indicator will continue to increase (for the third month in a row), thus repeating the trajectory of the PMI indices. If the expected figures coincide with the real ones, the single European currency will receive additional support to further rise.
On Tuesday, April 27, the US consumer confidence indicator will be released. In March, a sharp increase was recorded: the indicator rose from the level of 90.4 to the level of 109.7 points. So in April, an upward trend is also expected – experts believe that it will grow to 112 points. In this case, the indicator will update the annual high. But, given the restraint of dollar bulls, we should not expect any increased volatility in favor of the US dollar.
The most important day of the week for the dollar is Wednesday, April 28. This is not only due to the announcement of results of the Fed's April meeting. Joe Biden is also expected to address the US Congress on Wednesday. It can be recalled that the American media reported last week that that the US President intends to initiate an increase in the tax rate on capital gains for wealthy citizens almost twice-up to 39.6%. At the moment, the tax rate for Americans with an annual income of one million dollars or more is 20%. At the same time, it is fair to note that there is a parallel income tax on investment income in the United States, that is, in total, the federal tax rate for rich investors can reach almost 44%. The official representative of the White House declined to comment on the above rumors, saying that the president will indicate his intentions during a planned speech to congressmen. This event may provoke increased volatility, unfavoring the dollar. Several experts said that the announced plans to raise taxes may significantly increase the resistance from both Republican congressmen (in full) and from some Democratic congressmen regarding the approval of the White House infrastructure plan, which proposes to increase the corporate tax rate to 28%.
As for the Fed meeting this April, analysts do not expect anything surprising. Most likely, Jerome Powell will just repeat the theses that he has previously stated. The essence of his position is that the regulator will ignore the possible inflation surge (and other macro indicators) in the second half of this year, without worrying about the "overheating" of the economy. According to the general expectation of the market, the Fed will announce the curtailment of QE no earlier than the summer of 2022, but we should not expect any temporary guidance from the regulator right now. Therefore, the results of the April meeting may put background pressure on the dollar, but given the fact that Biden will talk to the congressmen on the same day, all attention will be focused on the news from Capitol Hill.
On Thursday, April 29, preliminary data on the growth of the US economy in the first quarter will be published. According to preliminary forecasts, the US GDP will rise by 6.5%. This is a very good result, which will indicate the economic recovery of the US. The GDP price index should also show positive dynamics, being at the level of 2.5%. However, this release may have a temporary impact on the dollar, especially if the Fed confirms its "dovish" position.
The same can be said about the impact of another important indicator, which will be published on Friday, April 30. We are talking about the Core PCE Price Index, which measures the core level of spending and indirectly affects the dynamics of American inflation. It is believed that this indicator is specially monitored by the members of the regulator. According to forecasts, the index will show positive dynamics – it is expected to increase to 0.3% (after a two-month decline) in monthly terms, and to 1.8% (the maximum since February 2020) in annual terms. This release may have a significant but short-term impact on the dollar's position.
From the point of view of technical analysis, the EUR/USD pair on the daily chart left the Kumo cloud, and settled above all the lines of the Ichimoku indicator (which formed the bullish signal "Parade of Lines"). In addition, the price is between the middle and upper lines of the Bollinger Bands indicator. All this indicates that the upward scenario in the priority. The first, and so far the main upside target is the level of 1.2150, which corresponds to the upper line of the Bollinger Bands indicator on D1.
