The euro-dollar pair is trading higher, but so far it does not dare to storm the key resistance level of 1.2000, which corresponds to the upper line of the Bollinger Bands indicator on the D1 timeframe. The US currency continues to be under pressure from the dovish rhetoric of the Federal Reserve representatives. The Fed members offset the achievements of the US economy, stating that the growth of the main macroeconomic indicators (in particular, inflation) may be temporary, and, therefore, it is too early to talk about curtailing QE and (especially) raising the interest rate. As a result, US macroeconomic reports, which are mostly published in the green zone, simply do not work. For example, the market ignored rather strong inflationary data and reacted phlegmatically to the Nonfarm, despite the green color of almost all components of the release.
In addition, the decline in the yield of treasuries reduced the advantage of the positive differential of greenback interest rates compared to other currencies of the major group. It is noteworthy that the growth of inflation indicators increased the demand for government bonds, while their yield decreased. In other words, this time, US inflation did not become an ally of the dollar, despite the acceleration of the main components. Apparently, traders agreed with Fed Chairman Jerome Powell and most of his colleagues, who say that the increasing price pressure is temporary.
The situation with the Johnson & Johnson vaccine also put additional pressure on the greenback. As you know, the US authorities just recommended to suspend the use of this vaccine. At the time of the announcement of the recommendation, almost 7 million Americans were vaccinated with this drug. And although Johnson & Johnson's share of the total supply of vaccines is insignificant, the very fact of the situation has reduced the demand for greenback.
Another factor of uncertainty is related to Joe Biden's economic plan to develop the country's infrastructure. The US president just held three-hour talks with key representatives of the Republican Party in Congress. The head of the White House insists that his initiative will receive bipartisan support, although the Democrats "in reserve" have an alternative option – they can apply the procedure of "budget reconciliation" and then pass the bill by a simple majority. But this option also carries risks, as several Democratic senators have opposed raising the corporate tax rate (to at least 28%). At the same time, the Democratic Party in the upper house of Congress does not have "spare" votes – the position of each Democratic senator plays a key role. According to the press, Biden's first negotiations with the Republicans ended without result: the head of the White House asked the congressmen to submit a "serious counter-proposal" for continuing consultations. It is also known that the US president has set a kind of "deadline" - if the parties do not come to a compromise solution by the end of May, an alternative scenario will be launched (the mechanism of "budget reconciliation" and a bet on the consolidated position of the Democrats).
All these fundamental factors that fell on the dollar almost simultaneously, gradually push the EUR/USD pair up. If we analyze each of the factors that were mentioned, we can assume that the current weakening of the dollar is a temporary phenomenon. For example, the Johnson & Johnson situation will not affect the implementation of the previously established vaccination plan (in fact, this was stated yesterday by a White House representative). If we talk about the prospects of Biden's economic plan, then there is a natural political bargaining with the Republicans, while the Democrats have a "trump card up their sleeve " in the form of a majority in both houses of Congress. And so on, and so on. But since the information background changed quite quickly and comprehensively, the dollar bulls were forced to give up their positions.
The European currency, in turn, received support from the European Commission today. In particular, the head of the EC, Ursula von der Leyen, said that the European Union has already vaccinated 100 million people (we are talking about the introduction of at least one dose of the vaccine). At the same time, she added that Pfizer is ready to deliver another 50 million doses of the drug before the agreed deadline – not in the fourth quarter, but by the end of June this year. In addition, the European Commission has unveiled a strategy to attract debt securities worth 800 billion euros to the European economic recovery fund, the funds for which will be paid by 2058.
Thus, given the current fundamental picture, it will be difficult for EUR/USD bears to return the pair to the decline scenario this week. At the same time, the pair's bulls have an even more difficult task: to develop an upward movement, not only do they need to overcome the resistance level of 1.2000 (the upper line of the Bollinger Bands coinciding with the lower border of the Kumo cloud on D1), but they must also settle within the 20th figure. This target is psychologically important, so bulls need an additional information driver for such a breakthrough. The pair is currently trading in the area of 1.1980, having come close to the key resistance level. In the conditions of such uncertainty, it is more convenient to take a wait-and-see position, observing the pair's behavior in the area of 1.2000. If the upward momentum begins to fade, you can play on the downward pullback, opening short positions while aiming for 1.1900 (the middle line of the Bollinger Bands, coinciding with the Kijun-sen line on H4).