The dollar continues its victorious march across the market, reflecting the increased demand. The US dollar index renewed its annual high today, surpassing the 93.32 level. Major dollar pairs behave accordingly: to one degree or another, the greenback dominates everywhere, regardless of the strength of the quoted currency. The euro-dollar pair is no exception here. Thanks to the general appreciation of the dollar, EUR/USD also renewed its annual low today, testing the support level of 1.1730 (the lower line of the Bollinger Bands indicator on the daily chart). Sellers clearly intend to enter the area of the 16th figure, but they are acting rather cautious. If last week we observed impulsive price movements, now the downward dynamics has acquired another character, accompanied by small upward pullbacks. However, for traders this is only a plus: corrective rises enables them to enter short positions at a more favorable price.
But the European currency shows weakness and passivity. Traders even ignored quite good data on the growth of German inflation. For example, the harmonized index of consumer prices in Germany (HICP) rose year - on-year to 2.0% - this is the best result since May 2019. The overall CPI in annual terms also showed a positive trend, rising to 1.7% (the highest value since February last year).
Despite such an impressive result, EUR/USD traders "passed by" this release. This suggests that the euro is moving exclusively in the wake of the US currency, which sets the tone for trading. European events of a fundamental nature are either ignored (like today's German release) or put pressure on the euro (weak vaccination rates, tighter quarantine restrictions, etc.).
The dollar, in turn, follows the yield of US government bonds. After a short pause and a short-term pullback, the yield of treasuries began to rise again. For example, if we talk about 10-year securities, that is, the indicator updated the annual high, reaching 1.774%. According to analysts of the Swiss conglomerate Credit Suisse, the yield of 10-year bonds in the second quarter will reach 1.82%, and by the end of the summer – will overcome the two-percent barrier. This dynamic is explained by the general optimism that is associated with the prospects for the recovery of the US economy.
Investors are looking forward to US President Joe Biden's speech tomorrow in Pittsburgh. According to general expectations, he will present his ambitious package of assistance to the American economy, the volume of which can reach four trillion dollars. The budget spending plan will include, in particular, investments in road construction and other infrastructure projects.
In addition, the greenback is in high demand against the background of fairly strong forecasts for the growth of the US labor market in March. The Nonfarm report will be published next Friday, but everyone knows that the unemployment rate may fall to 6.0%, and the growth rate of the number of employed people may jump to 630,000. The greenback will get another trump card for its growth if the real figures manage to reach the level of forecasts.
Let me remind you that the Federal Reserve at the March meeting revised its economic forecasts in the direction of improvement. In 2021, the US GDP is expected to increase by 6.5% (not by 4.2% as previously predicted). If this forecast is justified, the US economy will show the strongest growth rate in almost 40 years. Moreover, according to a number of Goldman Sachs analysts, this figure will grow not by six, but by eight percent.
Such bright prospects are pushing the dollar throughout the market - even against the euro. The current macroeconomic reports also support the greenback. For example, the CB Consumer Confidence that was released today has jumped to 109 points while the forecast was for it to rise to 96 points. Today's result was the strongest since March 2020. We can also mention the house price index in the twenty largest cities in the US that was also released today. This indicator has a limited impact on the market, but at the same time the methodology for its calculation is recognized as one of the best. This indicator has been consistently growing since June 2020 and once again it has demonstrated positive dynamics today, having risen to 11.1%.
However, the aforementioned US reports only provide indirect support for the greenback: market participants are currently focused on anticipating Biden's speech tomorrow. In my opinion, tomorrow the dollar will get another reason for it to strengthen throughout the market, while the euro still has no counterarguments to turn the situation in its favor.
The technical picture also indicates prioritizing short positions on the EUR/USD pair. The price is located on the lower line of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which formed a bearish Parade of Lines signal. At the moment, the bears are trying to settle below the support level of 1.1730 (the lower line of the Bollinger Bands on D1). This level is difficult for the bears, given the total number of upward (small) pullbacks within the day. Therefore, it is advisable to go into shorts after the attack on this impregnable price mark. Overcoming the 1.1730 mark will open the way for the bears to the price area of 1.15-1.16. In this case, the target for the downward movement in the medium term will be the 1.1620 mark – this is the upper limit of the Kumo cloud on the weekly chart.
