The US dollar stopped falling. On Tuesday, the US currency index jumped by 0.4%. And today, the upward correction continues. The current strengthening is the strongest since the beginning of April. It clearly shows the pressure the dollar has been under recently.
Demand for the dollar increased due to a corrective decline in the main stock indexes, which reinforced the pullback from the historical highs reached at the end of last week. The pressure in this area may be due to the desire of investors to lock in profits by the end of this month. There is also a possibility that the markets decided to act ahead of the curve – "sell in May and leave". It is worth noting the reduction in trading volumes by a quarter, indicating the beginning of the summer lull.
However, a decrease in an activity does not mean a change in the trend. The current trend can only weaken for a while. Traders must understand how long a reversal can take.
Despite the attempts to grow, the latest downward movement of the dollar to the basket of competitors should not be ignored, as this is a kind of impulse of the renewed long-term trend of weakening of the greenback.
The outpacing recovery of the US economy is good. However, the dollar is likely not to be able to take advantage of this. It's all about the growth in yields, which the Fed will suppress against the background of rising inflation. Actual dollar rates are expected to decline, while short-term rates are expected to deepen into the negative area. In the medium term, the "American" will have to remain under pressure, and there is no other way out.
Thus, the dollar will be profitable to sell on the correction that started this week. Specific entry points will depend on the short-term technical picture. As for the main Forex pair, EUR/USD looks attractive below 1.1900, taking into account the medium-term long to increase to 1.2200 and above.
In the medium term, the euro is expected to remain to trade in a bullish channel. On Wednesday, the pair moves away from the highs reached on Tuesday. Two clear signals indicate the possibility of increasing bearish sentiment in Forex against the EUR/USD pair. To finally make sure of this, you need to wait for the breakdown of the support level of 1.2020. The next "victims" of the downward trend may be the marks of 1.1985, 1.1950, and 1.1915.
If buyers manage to seize the initiative, then the quote can move to the area of 1.2110 and 1.2160.
About the pound
From the point of view of technical analysis, the signal for the sale of the British pound is increasing. At the same time, analysts do not cease to show confidence that the pound's growth will continue in the future after a short correction.
The forecast for the next session assumes trading of the GBP/USD pair between 1.3900 and 1.3990. "Overbought against the background of weakening momentum suggests that the pound has entered a consolidation phase," experts from UOB write.
Meanwhile, the forecasts announced earlier remain relevant. The pound will continue to try to gain a foothold above the mark of 1.4000. Meanwhile, the next resistance of 1.4100 is unlikely to be overcome by buyers quickly and will not be reached soon.
A breakdown of the strong support of 1.3850 will indicate the end of the pound rally.
The focus of pound traders today is several events. We are talking about the report of the head of the Bank of England.
Britain published the consumer price index for March. In annual terms, price growth accelerated to 0.7% compared to February's 0.4%. Analysts expected an increase in the rate of inflation to 0.8%. Meanwhile, traders did not react to these statistics since the report will not reflect the pace of economic recovery in the country and will not impact the monetary policy.
"The consumer price index is not the data that will contribute to the growth of the pound in the short term," CIBC Financial markets believe.
Investors will focus on Friday's composite UK purchasing managers' index to gauge the strength of the UK economic recovery. They are also waiting for retail sales statistics at the end of the week.