Black Pipper

Forex Dreamers

The pair is strengthened by a weak dollar and confidence in the future of the eurozone

Fundamental analysis of FOREX for April 9, 2021

There seem to be no fundamental reasons for the growth of the euro. Suffice it to recall the confusion with vaccines and hence the low rates of vaccinations, lockdowns, the prospect of a double recession. It would seem that the euro should be the weakest link in the forex market. In fact, EUR / USD buyers are testing the 1.19 resistance.

Rather, the dynamics of the pair depend no longer on the success of the single currency, but on the failures of the dollar. In March, a rally in Treasury yields pushed greenbacks higher, testing the strength of the Fed’s assurances. The Fed did not flinch. Jerome Powell’s team has repeatedly emphasized its adherence to the super-soft exchange rate, and investors have ceased to focus solely on debt market rates, which did not fail to take advantage of the “bulls” of the Eurodollar.

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The FOMC rhetoric supports the growth of stock indices, and with the condition currency correlations, and risky assets. Strong Non-farm Payrolls and business activity indices did not signal the Fed’s monetary policy normalization. Jerome Powell noted that it is premature to draw any deep conclusions from a single report. The head of the Federal Reserve Bank of St. Louis, James Bullard, also believes that for changes in monetary policy, first of all, it will be necessary to finally defeat COVID-19. His colleague from San Francisco, Mary Daly, believes that there is still a long way to a stable recovery of the American economy.

Trading against the Fed is nothing but losses to traders cannot bring, so we are seeing a seemingly paradoxical picture of a rise in EUR / USD against the backdrop of an increase in the number of infected people in the Eurozone, calls for new restrictions and lousy vaccinations. It should also be noted that investors may buy rumors about the imminent bright future of the Eurozone, especially since the bursts of economic statistics suggest that the German economy has fully adapted to the conditions of the pandemic.

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Dynamics of German production orders
Dynamics of German production orders

Of course, the S&P 500 will not break records forever, and Treasury yields will reassert themselves, pushing the dollar up, so there is no reason to expect a rapid rally in EUR / USD. There are quite strong resistances on the way of the pair, but as long as the market believes in the improvement of the situation in the Eurozone, the euro will grow.

The further the US stock indices rise, the more talk about market bubbles. The dynamics of the S & P500 renewed the 2007 record, but if you go back to that time, you can see that after a sharp take-off, there was a rapid collapse, and then an economic crisis.

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Dynamics of borrowing secured by investment portfolios
Dynamics of borrowing secured by investment portfolios

We think that even now the recovery of the American economy will not be long, and in 5-7 years the US will again face a recession, but while the stock market is growing, the euro will test new heights. If buyers of EUR / USD can break above the 1.1930-1.1935 area, the consolidation range will move to the 1.1850-1.2000 range. If the bears gain the upper hand, the asset will continue to move in the 1.1800-1.1950 format.

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