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EUR / USD: the European currency begins to catch up with the dollar

Fundamental analysis of FOREX for April 28, 2021

Today we will finally find out how Jerome Powell evaluates, taking into account new trends, the prospects for monetary policy (MP), and will the markets be ready to tighten the rate? Although you can say in advance that it is unlikely. The Fed has been talking so long about its commitment to super-soft monetary policy, willingness to endure surges in inflation and keep the stimulus program in full, that investors stopped paying attention to economic releases, and Treasury yields fell to lows in 6 weeks. However, at the moment the rates on bonds are growing, which, in fact, provides support to the sellers of EUR / USD.

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Today – tomorrow the FOMC meeting will take place, so investors are in no hurry to open new forex orders. EUR / USD is holding in a narrow price corridor 1.2055-1.2110. Of course, most analysts guess what the head of the FRS will once again tell about. But what if something goes wrong? It is known that any hint or inadvertently dropped phrase from a leader of such a level as Jerome Powell causes a storm on financial markets.

Of course, the likelihood that tomorrow the FOMC will announce a cut in the asset purchase program is very small. Everyone remembers Ben Bernanke’s premature QE winding down in 2013, which caused panic in financial markets. And then, as practice shows, FOMC members are less aggressive than CME derivatives or Bloomberg analysts, who predict a $ 120 billion cut in the program in the fourth quarter.

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Economists’ forecasts on the timing of the winding down of QE

The economy of the United States, despite its rapid growth, remains a lot of vulnerabilities, and there is no point in the Central Bank forcing events. Maybe if in May-June inflation reaches 3.5%, the regulator will start thinking about adjusting the policy, but even then it is unlikely, since according to forecasts in the third-fourth quarters the economy will slow down, which will help the CPI to return to its usual level by the end of the year 2.1%.

Dynamics of US bond yields and global PMI
Dynamics of US bond yields and global PMI

I do not think that the current growth in Treasury yields will have the same consequences for EUR / USD as in March. The eurozone is accelerating the pace of vaccination and is still trying to solve with the launch of a bailout fund. This will support EUR / USD, even if the pair continues to decline after breaking through the lower border of the consolidation range at 1.2055. Our forex trading method remains the same – buying on the rebound from the 1.2045 supports; 1.2000 and 1.1965.

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