The US dollar has been exhausted lately. Market participants remained indifferent to Nonfarm, US inflation and other minimal macroeconomic reports. The indicated currency even ignored the announcement of Donald Trump's impeachment, although this fact is unusual: the current head of the White House will go down in history as a president whom they wanted to remove from power twice in one term. However, this bizarre situation did not impress the traders. The US dollar index remained practically in the same positions as before the vote in the Lower House of Congress.
All of this suggests that political fundamentals are no longer again the main driver for the US dollar's growth, which is primarily due to the predictability of the current situation. The Democrats have started a political game, whose result is known in advance to all participants and observers. On the one hand, the situation is truly strange: Trump became the first president in history to be impeached twice and even ten members of the House of Representatives from the Republican Party voted for this decision. But on the other hand, this fact is uninteresting in the currency market.
Nothing will change in the medium-term: the indictment against the US president is to be approved by the Senate, which will meet for the first time this year on January 19, that is, the day before Trump's term ends. At the same time, the senators have already refused to hold an extraordinary meeting. Second, a guilty verdict requires 67 senators' votes out of 100. After the Democratic Party won before the Georgia election, they had secured 50 votes in the Upper House of Congress. It is known that Democrats control the Senate, but they still need two-thirds of the vote for the president to be found guilty and removed from office. So, a lot of experts believe that Trump's opponents will not be able to win over 17 Republicans to their side: this bar has not been reached once in history, including the first impeachment of the current president.
To simply put it, the impeachment procedure will only be completed after January 20, that is, after J. Biden's inauguration. The US Constitution says that this issue can be considered in relation to the ex-president. The Senate could ban Trump from running for public office, blocking his nomination in the 2024 presidential election. Many analysts believe that the Democrats initiated this process solely for the sake of achieving this result. However, such long-term assumptions are simply not interesting for the currency market. Therefore, the dollar bulls are calmly watching what is happening in Congress, while ignoring the strong accusations against Donald Trump.
On another note, the US dollar stays above, despite the disappointing Nonfarm, extremely weak inflation and decline in ant-risk sentiment. It should be recalled that the number of people employed in the non-agricultural sector in December fell by 140 thousand against the forecasted growth of 70 thousand for the first time since April last year. Inflation was also disappointing, although almost all components came out in line with the forecast. In particular, the core consumer price index slowed to 0.1% on a monthly basis.
However, it seems that the market is still hopeful. This is in connection with Mr. Joe Biden's speech when he promised trillions of dollars as an additional assistance for the US economy to overcome the coronavirus crisis. And if earlier, these promises could be viewed through the prism of the election campaign, such prospects have now taken on real form. Democrats control both houses of Congress, and their leader will soon take over as the US president. Things are actually gradually being put together perfectly, while dollar bulls are waiting for large-scale fiscal stimulus. Amid such prospects, traders are not in a rush to get rid of the US currency. In particular, EUR/USD buyers failed to consolidate in the area of the 1.22 mark. But as soon as the pair broke the level of 1.2200, it attracted sellers. As a result, the price returned to below the 21st price level. However, the bears were not able to break through the support level of 1.2110 (lower line of the Bollinger Bands on D1). Thus, market participants are waiting for the intrigue to be resolved.
During the Asian session on Thursday, the American press (CNN was the primary source) reported that Janet Yellen, who will soon become the US Treasury Secretary, will propose to increase the package of additional fiscal stimulus measures to two trillion dollars this week. But according to another version, Joe Biden will directly voice out a similar proposal during his inaugural speech. This information background provoked an increase in Treasury yields – in particular, the yield on 10-year securities rose to 1.11%, simultaneously providing support to the US currency.
Therefore, the dollar bulls have strengthened due to expectations of a larger fiscal stimulus, despite the decline in anti-risk sentiment. The current fundamental outlook prevents the buyers of the EUR/USD pair from developing a large-scale offensive: the US dollar will be in demand in the medium-term until the issue of the new aid package for the US economy is resolved.
This means that short positions for the EUR/USD pair can be considered, with the first target of 1.2100 and the main target of 1.2070 (Tenkan-sen line on the daily chart). It is too early to talk about a larger price decline, given the Fed's "dovish" remarks and weak macroeconomic reports. However, the pair is likely to fall within the 100-point range. In this case, the dollar will be "bought on rumors", then "sold on facts".