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Will the Fed hint at a QE cut?

Fundamental analysis of FOREX for April 26, 2021

In March, the main factor behind the dollar’s strength was rising bond yields, supported by high vaccination rates and a strong recovery in the US economy. In April, the United States lost its exclusivity, as the pace of vaccinations is gaining momentum around the world, therefore, the economies of other countries will also show good recovery rates in the very near future. According to the World Health Organization, in all regions, with the exception of the Eurozone, the number of infected is increasing. In the Old World, they managed to launch a full-fledged mechanism to combat COVID, which strengthens the European currency, and EUR / USD allows it to remain above the 21st figure.

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In the United States, 68% of the population has received at least one vaccine. Last week, the April service business activity in the United States posted a record high of 63.1 pp. However, investors are no longer surprised by strong US reports. The Eurozone is another matter, where expectations were significantly lower than American ones. Here, the purchasing managers’ index in the manufacturing sector showed a historical maximum, and the similar indicator for the services sector for the first time in 8 years rose above the key level of 50 p., Which indicates good prospects for economic growth and keeps EUR / USD in an upward trend.

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Dynamics of European business activity

Nonetheless, Bloomberg continues to forecast a double recession in the Eurozone in the first quarter. But judging by the purchasing managers’ indices, this is a temporary downturn.

Successful vaccinations, a decline in the pandemic and strong economic statistics can influence the policy of the European Central Bank. Bloobmerg said the issue of changing course was not raised at the April meeting of the regulator, but on June 10, a split in the Board of Governors may be brewing, as some Board members have long hinted at a PEPP cut in the third quarter.

The Fed has slightly different plans. Here, at the next FOMC meetings, the question of how to present investors with the news about the reduction in cash flow will be decided. Jerome Powell’s main goal is not to scare the markets. If the speech of the head of the Federal Reserve does not send Treasury yields to growth, then speculators will continue to sell the dollar.

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Dynamics of the USD index and speculative positions in the US dollar
Dynamics of the USD index and speculative positions in the US dollar

I think that the risks of a double recession and the US Q1 GDP data have already been taken into account by the EUR / USD quotes, therefore, if the actual indicators of the reports do not look much worse than forecasts, then we will continue to buy EUR / USD on a decline towards the targets of 1.2155 and 1.2180.

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