Experts believe that the US dollar closed previous month on a positive note, despite a long-term decline. The euro, in turn, experienced serious fluctuations – moving from rise to fall and is now close to another recession.
At the end of April, the US currency strengthened. However, last month turned out to be difficult for both the USD and EUR. Although the euro currency did not show such a massive decline against its competitor in the EUR/USD pair, it was balancing on the verge of falling all the time.
According to analysts, the Fed's current strategy is the reason why the dollar declined for quite some time. It should be recalled that the representatives of the Federal Reserve are confident that the revision of the balance sheet of the regulator is possible in the case of noticeable progress in the employment field and when the target inflation rate of 2% is reached. At the same time, investors' mood towards the US dollar changed from negative to positive by the end of the previous month. Market participants no longer ignored America's strong macro statistics. Therefore, traders and investors are expected to continue to act in this direction in the near future, expecting a speedy recovery of the US economy.
Many experts focus on the noticeable differences in the pace of recovery of the European and American economies. In the current situation, the euro zone economy is noticeably losing to the United States. What worsened the situation was the GDP report of the Eurozone published last Friday. Despite a slight decline in the European indicator (by -0.6% instead of the predicted -0.8%), the European economy was in the middle of another recession.
The current situation has had a depressing effect on the EUR/USD pair. Last Friday, the instrument was dominated by bearish sentiment, which is why the indicators declined from the previous level of 1.2100 to 1.2070-1.2050. In the future, a resistance zone at the level of 1.2033 may form. Experts expect increased pressure on the euro, with potential bearish targets around the 1.1993 and 1.1957 mark. On the morning of Monday, the EUR/USD pair recorded an increase in bullish sentiment for the Euro currency. This pair has now significantly plunged, reaching the level of 1.2040, but its dynamics turned out to be contradictory.
Last month, traders actively increased their positions on the euro's growth, approaching the maximum values for the last month and a half. Experts believe that the continuation of the current trend will lead to an increase in the EUR/USD pair. This is facilitated by the improvement in economic forecasts for the euro area, in particular for German GDP. It can be recalled that the countries of the Euroarea, as well as Germany, suffered from a series of lockdowns due to the third wave of COVID-19. However, the latest news from Germany related to mass vaccination of the population is encouraging. The country has set a new record, having made 1 million vaccinations against COVID-19. According to analysts, the recovery of the euro zone economy will continue to gain impulse amid the active immunization of the population. The implementation of such a scenario will help the euro to rise and push the dollar again.
Economists are also optimistic about the US currency. Experts expect an economic recovery in the areas of production and services in the United States. This week, the next report on the level of employment outside of agriculture in America is expected. According to preliminary forecasts, it is possible to create more than 1 million jobs. If this forecast is confirmed, the dollar will get an additional boost for growth.
As for the Euro currency, the situation may worsen. The difference in economic indicators between Europe and the United States at the end of last week played against the EUR. As a result, the single currency sharply declined, although it recovered some of its positions. According to experts, maintaining the existing contrast in the economic data of Europe and the United States may provoke a corrective pullback in the EUR/USD pair. Thus, they do not rule out an imbalance in the pair in the medium and long term in view of differences in the monetary policy of the Fed and the ECB.