Throughout most of April and May, the euro strengthened strongly against the US dollar on the back of pressurized US bond yields, positive surprises from European economic indicators, and accelerated vaccinations in the EU. Nevertheless, at the end of spring, the EUR/USD bears started to play counterplay related to talks about the Fed's tapering of the quantitative easing program, expectations of an increase in the US national debt, as well as fears of uncontrolled inflation acceleration.

While the Fed's overall stance is fairly transparent (it sees the CPI surge as temporary and the labor market far from full employment), the fact that every first FOMC member is starting to talk about cutting monetary stimulus brings hope back to the ranks of US Treasury bond sellers. The positioning in the debt market is somewhat stretched, which increases the risks of compression, rising prices, and falling bond yields, but you should pay attention to a similar situation that took place in 2017. There were more sellers then than now, but the rates on debt instruments still increased.

Dynamics of yield and speculative net positions on bonds

Let me remind you that in March, the growth in US debt yields became the main driver of the US dollar's strengthening, and its fans still believe that history will repeat itself. First, judging by the Wall Street Journal insider, Joe Biden plans to increase budget expenditures to $6 billion in 2021/2022 and to $8 billion in 2030/2031, which will expand the size of public debt to GDP from the current 100% to 117% and will contribute to growth bond rates. Secondly, the acceleration of inflation will force investors to throw these securities off their hands. And finally, thirdly, the tapering of QE may become a reality as early as 2021, and an increase in the federal funds rate in 2022.

These factors revive the belief of the EUR/USD bears that they will be able to win back. They say that in April-May the pair grew due to the positive economic surprises in the eurozone, but the flow of good news cannot last indefinitely. Experts are raising forecasts which are becoming increasingly difficult to beat.

Dynamics of EUR/USD and economic surprises in the USA and the Eurozone

While the "hawks" of the ECB's Governing Council believe that the rise in interest rates on the debts of the countries of the currency bloc reflects the objective reality in the form of an economy rising from its knees, "doves", on the contrary, argue that it can nip the recovery of the eurozone's GDP in the bud.

The key events of the week to June 4 for EUR/USD will be the releases of data on European inflation and the American labor market. Bloomberg experts predict that consumer prices will accelerate to 1.9%, and employment outside the agricultural sector will increase by 621,000, which may be good news for the US dollar.

Technically, after reaching the 78.6% target for the Shark pattern, the probability of a rollback in the direction of 23.6%, 38.2%, and 50% of the CD wave increased. These levels correspond to the levels of 1.213, 1.205, and 1.198. We will use them to buy EUR/USD in case of a rebound. In the meantime, you can use short-term sales.

EUR/USD, Daily chart