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A split is brewing in the ranks of the ECB

Fundamental analysis of FOREX for April 21, 2021

Be that as it may, but currency trading on forex depends not only on economic indicators, but also on who leads the leading economies. Under Donald Trump, trade wars flourished, the Fed leadership was accused of incompetence on a weekly basis, the dollar rose despite shouts from the White House. Investors were not bored. After Joe Biden came to power, hysteria in financial circles disappeared, and calm and predictability reigned in the markets. Currency rates began to be determined by economic releases and monetary policies of central banks.

The main driver of EUR / USD strengthening in April was the narrowing of the difference between the yields of German and American bonds. Treasury yields are declining, as the Fed does not react to inflation spikes and strictly adheres to the chosen course of monetary policy. Investors understand that a large part of the positive has already been taken into account by prices, therefore, the next super reports from the US do not lead to an increase in bond rates, and, accordingly, do not strengthen the dollar.

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Dynamics of the yield of German and American bonds

There is another interesting point. The expectations for the United States are so high that it is already difficult to say what kind of news investors will be surprised at. At the same time, low expectations for the Eurozone economy allow turning any more or less positive news into a growth driver for the euro. Speculators understand this very well, so in April the volume of net dollar sales began to grow.

Dynamics of speculative greenback positions
Dynamics of speculative greenback positions

In addition to accelerating the pace of vaccinations in the Eurozone, rising German bond yields are underpinned by risks of a split in the ECB’s Governing Council. In this regard, the meeting of the regulator this week seems to be very important. Will Christine Lagarde be able to maintain a course on super soft politics? Even a slight decrease in PEPP buying volumes will strengthen the positions of EUR / USD buyers.

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Summing up, we can say that the fall in Treasury yields is putting pressure on the dollar, and the euro is enjoying various positive reasons for growth. At the same time, there will be no easy strengthening for EUR / USD. At the moment, information about the high mortality rate from COVID-19 in India has returned investors to defensive assets and sent American stock indices into correction. This is a very disturbing signal. Humanity has not yet defeated the infection, and the markets feel as if there was no pandemic.

Nevertheless, investment ideas of strengthening risky assets remain valid. Traders are advised to use forex trading strategies to buy EUR / USD on any bearish pullbacks. A rebound from the 1.1990 and 1.1935 supports may become a signal to enter long positions.

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