EUR/USD. When everything is against you: dollar slumps following treasury yields

The US dollar index falls after the yield of 10-year treasuries. These indicators showed growth for several weeks, reflecting the hawkish expectations of traders. And now, with similar solidarity, they are showing a decline, reflecting the opposite sentiment among market participants. It is worth noting that the dollar index is declining without any specific reason of a fundamental nature: the macroeconomic calendar is almost empty today. Actually, yesterday the greenback weakened without any information shocks. The dollar plunges, on the wave of general skepticism about the hawkish intentions of the Federal Reserve.

The Fed only adds fuel to the fire. At the beginning of the year, Fed Chairman Jerome Powell warned that the central bank would not reflexively react to the recovery of key economic indicators. But then Powell was not heard: the dollar strengthened its position against the background of falling unemployment, rising employment, accelerating inflation and consumer activity of Americans. The Fed acknowledged that the US economy is recovering at a more active pace, ahead of earlier forecasts. In this regard, the central bank even revised the December forecast for GDP growth (and very significantly – from 4.2% to 6.5%).

But at the same time, members of the US central bank still sound dovish rhetoric, insisting on maintaining ultra-soft parameters of monetary policy. The Fed was able to convince traders that it will adhere to an accommodative policy "against all odds", that is, despite the V-shaped recovery of the US economy and a jump in inflation – even if it exceeds the target level. In one of his speeches, Powell noted that the current upward momentum may fade by the end of this year, while further growth prospects are in great doubt. So, according to the aforementioned Fed forecast, the US economy will grow by 6.5% in 2021, and by 3.2% in 2022. And the forecast of US GDP growth for 2023 was completely worsened by the central bank – to 2.2%.

If we talk about the approximate timing of an interest rate hike, then it is worth recalling the point forecast of the Fed, which was published following the results of the March meeting. So, in March, the number of those who expect a rate hike no earlier than 2023 has increased – if there were five of them in December, then their number increased to seven at the March meeting. Since this meeting, Powell has repeatedly stressed (most recently just last week) that the rate will not be raised for at least two years. As for QE, the members of the Fed also agree that the stimulus program should not be curtailed ahead of schedule.

Again, the market ignored the Fed's dovish rhetoric for several months - until March 31, when US President Joe Biden presented his ambitious and expensive infrastructure plan. If we look at the daily chart of the dollar index or EUR/USD, we will see that the greenback reached its peak on the last day of March. After that, a systematic but consistent rollback began.

Rumors about the development of a grand economic plan, the volume of which was supposed to be from 3 to 4 trillion dollars, pushed the US currency up for several weeks. But as soon as the rumors became reality, this fundamental factor stopped working for the dollar, turning against it. The bill, which involves raising taxes, has faced criticism – not only from Republicans, but also from some Democrats. As a result, the presidential initiative got bogged down in the swamp of political bidding.

The White House is currently holding talks with the Republican Party, but, apparently, these negotiations are doomed to failure, although Biden continues to "make a good face at a bad game." Last week, he said he was pushing for bipartisan support for the law. However, according to media reports, the negotiations with the Republicans will end ahead of schedule (according to some sources - this week), after which the White House will have to make concessions to the Congressional Democrats. At the moment, at least ten senators from the Democratic Party are not ready to support the Biden bill in the form in which it was presented by the head of state, primarily because of the increase in the corporate tax rate to 28%. At the same time, the Democrats do not have spare votes in the Senate – as they say, "every vote counts." If the negotiations with the Republicans finally fail, the White House will have to launch and implement a mechanism for "budget reconciliation" (similar to the procedure for adopting the "American Rescue Plan" worth $1.9 trillion). Only after that, the Democrats will be able to vote for the infrastructure plan by a simple majority - if of course they express the corresponding desire.

Thus, dollar bulls literally have nothing to cling to – almost all fundamental factors, even positive ones (for example, US macroeconomic reports) are either ignored by the market or interpreted against the greenback.

If we talk directly about the EUR/USD pair, it should be noted that the pair stopped rising after it surpassed the 1.2000 mark. This is quite an alarming signal, so at the moment it is better not to rush with long positions, since a corrective pullback is not excluded for the pair. To confirm the strength of the upward momentum, buyers need to overcome the upper line of the Bollinger Bands indicator on the four-hour chart, which corresponds to the 1.2050 mark. In this case, you can consider long positions to the next resistance level of 1.2100. If bulls do not take the price barrier, then a downward price pullback to the lower border of the Kumo cloud on D1, which corresponds to the mark of 1.1970, is likely.