The three-day upward correction for the euro-dollar pair ended at the borders of the 20th figure. At least, EUR/USD traders did not dare to test the key resistance level: as soon as the price rose to the level of 1.1991, sellers began to show their activity. Buyers of the pair began to take profits en masse as if they did not believe in the success of the upward campaign, thereby strengthening the bearish mood. The Friday factor also played a role – market participants did not dare to leave long positions open over the weekend, especially on the threshold of the 20th figure. As a result, traders headed back to the range of 1.1850-1.1920, where, obviously, they will be stationed in anticipation of further instructions.
The corrective growth of the pair, which was observed during the previous three days, was due to several factors. First, the decline in the Treasury yields: investors switched to the stock market, indicating a craving for risky assets. For example, yesterday, the Dow Jones and S&P 500 indexes reached new historical records, reacting to President Joe Biden's signing of the $1.9 trillion stimulus package to save the US economy. Although, in general, no one doubted that Biden would sign this document: after the proposed aid package was approved by the Senate, there was not a single real obstacle to its final adoption. Nevertheless, traders reacted quite violently to the approval of the largest aid package in the history of the United States. This is especially true for the stock market – in particular, the Dow Jones index jumped to 32,485.59 points – this is the highest result of all time.
Meanwhile, the yield on the 10-year Treasuries soared again, breaking through the 1.6% mark. The temporary decline that was observed this week (and which, in fact, dragged the greenback with it), was attributed by many experts to the controversial inflationary release. They say that the growth of general inflation in the United States is consistent with a rather weak forecast, and the core consumer price index even went into the "red zone", showing a slight slowdown. This fact has somewhat neutralized the concern of some investors about a possible jump in inflation. But, as we can see, only for a while. Starting on Monday, the US authorities will actively "pump money" into the American economy, while continuing to actively vaccinate Americans against the coronavirus.
According to some estimates (in particular, Bloomberg economists), during the lockdown and subsequent periods of quarantine restrictions, US residents managed to accumulate about $1.5 trillion. According to economists' forecasts, this money will "go to waste" in the second half of this year - that is, in a few months we may witness a consumer boom in the US. Such prospects give rise to rumors that the US Federal Reserve may change the tone of its rhetoric to a more "hawkish" one, allowing for the option of an early collapse of QE and an increase in interest rates ahead of schedule (2023). Allegedly, members of the Fed will be forced to abandon the "dovish" policy, recognizing the active recovery of the US economy through fiscal stimulus and mass vaccination.
It is noteworthy that such rumors do not fade even after the representatives of the Fed denied them in their comments. Fed Chair Jerome Powell has stressed that the regulator will allow the American economy to "overheat" before starting to tighten the parameters of monetary policy. At the same time, he added that he is calm about the possible impulse growth of inflation - in his opinion, such dynamics will be temporary in any case.
Recall that next week, (March 16 and 17) the next meeting of the Federal Reserve will take place, following which the regulator will indicate its position - both regarding the dynamics of key macroeconomic indicators and regarding the rapid growth of Treasury yields. The March meeting will become a kind of "watershed" for traders: either the regulator will remain committed to the current course, or it will still allow the implementation of other options, in terms of early rejection of its "dovish" obligations. Even if this is voiced in a hypothetical context, the result will not be long in coming: the dollar will again strengthen its positions throughout the market, including in a pair with the euro. Judging by the dynamics of Treasury yields, investors are "betting" on the second option, allowing the Fed to tighten its rhetoric.
But the euro is forced to reckon not only with the contradictory results of the March meeting of the ECB. The fact is that the pace of vaccination against coronavirus is slowing down in Europe. Along with bureaucratic delays and vaccine supply disruptions, concerns about the AstraZeneca drug are growing. Several European countries (at present, Denmark, Norway, Thailand, Iceland, Italy, Austria, Estonia, Luxembourg, Latvia, and Lithuania) have suspended vaccination with this drug or stopped using individual batches of the vaccine. This happened after a woman died after vaccination in Denmark due to the formation of blood clots. Now experts are conducting additional checks, although representatives of the manufacturing company have assured that their drug is safe. This problem was also touched upon yesterday by the members of the European Central Bank, who linked the pace of economic recovery in the eurozone with the pace of vaccinations in the EU countries. Therefore, it is not surprising that such a flow of news puts pressure on the euro, which has weakened today throughout the market.
Summarizing the above, we can conclude that, due to the indecision of buyers, who began to fix profits en masse around the 1.2000 mark, the EUR/USD sellers were able to seize the initiative for the pair. Rising Treasury yields, Biden's endorsement of America's Bailout Plan, and the expectation of hawkish notes from the Fed are pushing the dollar higher. While the euro is under the yoke of scandals related to the vaccination process. Such a fundamental background allows the bears to strengthen the downward movement, returning to the area of the 18th figure. The target of the downward movement is 1.1845 - this is the price low of the current year, coinciding with the lower line of the Bollinger Bands indicator on the daily chart.