US statistics released last week indicated that the US economic recovery appears to be picking up steam.
However, this fact did not provide significant support to the greenback, which fell by more than 0.7% over the past five days.
The fact is that strong US macro statistics spurred the growth of risk appetite.
As a result, major US stock indexes hit record highs last week and the USD hit its lowest levels since March 18.
The “dovish” comments of the FRS representatives, who supported the US debt and stock markets, added fuel to the fire of the greenback’s decline.
The yield on 10-year Treasuries fell to 1.5280% last week from more than a year’s high of 1.7760% at the end of last month. This reduced the attractiveness of the dollar in the eyes of investors.
Federal Reserve officials admit that the pace of the US economic recovery is impressive, but stress that this is not enough to even begin to discuss the curtailment of economic stimulus programs.
In particular, a member of the Fed’s Board of Governors Christopher Waller said that he expects the US economy to pick up, but sees no reason to start tightening monetary policy.
“We still have a relatively high unemployment rate, so we still have a lot to do. There is no reason to refuse to provide support until we really get out of the crisis, ”he said.
According to the chairman of the Federal Reserve Jerome Powell, for the regulator to think about revising its policy, it will take several more months of positive results. In addition, the national economy should move more significantly towards the target levels of the Central Bank for employment and inflation.
“When US statistics become strong, and the Fed’s rhetoric does not become hawkish, we can observe an increase in risk-sensitive assets,” said strategists at Nomura.
“Since the USD has generally weakened over the week, we can conclude that the good data for the United States was included in the quotes even before their publication. In addition, the market fears that the data will deteriorate in the coming months due to the weakening of the stimulus effect. It is possible that the Fed in the short term will ignore these data, and stimulus measures and consumption growth due to accumulated savings will further increase the deficits negative for the USD (budget and foreign trade), – said analysts at Saxo Bank.
“If market sentiment remains favorable, the EUR / USD pair could burst past the 1.2000 mark and head towards the current year highs of 1.2350 quite soon,” they added.
The main currency pair continued its growth last week, coming close to the important resistance level at 1.2000 and ending the last five days near the 1.1980 mark.
On Monday, the USD index continued its plunge, going deeper into negative territory and testing the strength of the key support at 91.00. Further south, a psychological level of 90.00 looms, and there are no significant support levels before the February lows in the 89.65–89.70 area.
Against the background of a weakening dollar across the entire spectrum of the market, the EUR / USD pair renewed seven-week highs around 1.2040.
The good news for the euro is that vaccination against COVID-19 is gaining traction in the Old World. So, by the end of April, about 20% of the German population should receive the first dose of the drug.
Italy talks about the possibility of easing quarantine restrictions in May. While the eurozone will continue to lag behind the US in terms of recovery, some European countries are already seeing light at the end of the tunnel.
Not many important event risks are expected this week as the economic calendar for the United States becomes less crowded.
From the meager flow of macroeconomic statistics, it is worth highlighting the data on business activity in the EU and the US for April, as well as the weekly report on US claims for unemployment benefits.
Investors will also focus on the next meeting of the ECB, which will be held on Thursday.
Market participants do not expect the regulator to take any action, but will wait for signals from it regarding future policy normalization.
“The ECB is likely to keep both the level of key rates and the volume of asset purchases unchanged. The tone of this meeting is likely to be similar to that of March. The regulator will maintain a wait-and-see attitude and will assess changes in financial conditions against the backdrop of economic recovery, ”experts at TD Securities believe.
On the technical side, buyers are generally in control, and as long as EUR / USD holds above 1.2000, it may continue to rise to 1.2130. A breakout of this level will clear the way for the bulls to the next round mark at 1.2200. Support runs at 1.1990, 1.1945 and 1.1900.