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FX.co ★ EUR/USD. Surprise from the ECB, greenback's weakness, and fights over "Biden plan"

EUR/USD. Surprise from the ECB, greenback's weakness, and fights over "Biden plan"

Buyers of the EUR/USD pair are again trying to strengthen their positions, once again storming the 19th figure. General skepticism about the outlook for the US currency has boosted the demand for the single currency. Dollar bulls are still unable to find a foothold: in particular, the Fed minutes published yesterday was controversial. Traders quickly enough (literally in a few hours) won back the positive aspects of the document, while the "dovish" theses continue to put pressure on the greenback. After some deliberation, the market concluded that "the glass is half empty, rather than vice versa," after which the dollar index turned downside again. The US labor market data released today added fuel to the fire. The number of initial applications for unemployment benefits increased over the past week by 744,000 (while the forecast was at the level of 680,000).

EUR/USD. Surprise from the ECB, greenback's weakness, and fights over "Biden plan"

However, macroeconomic reports play a secondary role here: the dollar is depreciating amid falling Treasury yields and political battles around Joe Biden's resonant 2-trillion infrastructure plan. Dollar bulls loosened their grip on March 31, when the US President presented his ambitious plans. Biden's initiative came under a barrage of criticism from Republicans, representatives of big business, and even some Democrats. And although according to the latest polls of Americans, the majority of citizens support the initiative of the presidential administration, many experts doubt that the resonant bill will be approved in the form in which it was presented.

For example, representatives of the Republican Party reject tax increases, along the way offering to reduce the "price tag" of the bill to $615 billion. Democrats, in turn (or rather, some of them) are concerned about raising the corporate tax rate to 28%. To "cut off" the demands of the Republicans, both houses of Congress need to apply the mechanism of "budget reconciliation" - in this case, they will be able to pass the bill by a simple majority. It should also be remembered that the Democrats have only one vote in the Senate, so if at least one Democratic senator does not support the bill, it will not be passed.

All of these political factors put background pressure on the greenback. The Fed, in turn, is also in no hurry to support the dollar. The regulator at its last meeting actually ignored the successes of the American economy, declaring its commitment to accommodative policy. The minutes of the March meeting published yesterday provided very little support to the dollar bulls. Traders drew attention to a slight change in wording (due to which the dollar grew a little yesterday) but later agreed that the document as a whole is quite "dovish".

By and large, the main theses of the minutes have already been announced by the head of the Federal Reserve System at the final press conference. The essence of his position boils down to the fact that the regulator will ignore a possible spasmodic rise in inflation in the second half of this year, without worrying about the "overheating" of the economy. Immediately after the publication, the dollar grew slightly due to one wording - the document states that the Fed will be able to start curtailing the asset repurchase program or raise the base interest rate from the current level after "some time". Earlier, the phrase was that the regulator will adhere to a soft monetary policy "for a long time."

However, this play on words did not help the dollar bulls: in the second half of Thursday, the greenback was again under pressure, against the backdrop of a decline in the yield of 10-year Treasuries. The weekly report on the US labor market, which came out in the "red zone", was the immediate reason for the weakening of the dollar.

But the euro received unexpected support from the ECB. According to the minutes of the last meeting of the European Central Bank, published today, the regulator may begin to reduce bond purchases this summer. A little later, a member of the ECB Governing Council, Robert Holzmann, confirmed such intentions, noting at the same time that the intervention of the European Central Bank in the bond market "turned out to be successful."

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EUR/USD. Surprise from the ECB, greenback's weakness, and fights over "Biden plan"

In other words, the EUR/USD pair is showing positive dynamics today, not only due to the weak positions of the dollar but also due to the strengthening of the euro. Nevertheless, traders are rather cautious about the "upward impulses" of the single currency: for the second day, buyers of EUR/USD have not been able to gain a foothold in the area of the 19th figure, as they fall under the "crossfire" of sellers. There are still enough fundamental factors in the dollar's asset to write it off (lower unemployment, rising inflation, record growth in the ISM index in services, record rates of vaccinations, the implementation of the second package of additional assistance to the American economy, and the remaining chances for the approval of a large-scale plan on infrastructure development).

Therefore, the buyers of the pair do not run the risk of holding longs, fixing profits when overcoming the 1.1900 mark. The upward impulse dies out, after which the sellers come into play. At least over the past two days, this picture has been observed: "one step forward, two steps back". Therefore, it is quite risky to open longs now because of "counter resistance", while the continuing vulnerability of the dollar does not allow us to enter sales with confidence. Given such an ambiguous situation, at the moment it is best to take a wait and see attitude - the mood of investors is too changeable, while there are still no clear confirming signals of a trend reversal.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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