The EUR/USD pair continues to gradually decline while waiting for this week's main events. Joe Biden is expected to speak on Wednesday, and US labor market growth data is scheduled to be released on Friday. These are the key topics for the EUR/USD pair in the medium term, while the current news flow provides a small support for the dollar.
Primarily, the US dollar took advantage of the growth of anti-risk sentiment among traders. The general nervousness was due to the current situation in the stock market: the default of the investment fund Archegos Capital brought down the shares of some major banks. It should be recalled that the reasons for the "big Friday sale" of shares with a total value of $ 30 billion was known yesterday. According to The Wall Street Journal, the Archegos Capital fund had large positions in the shares of companies in the Asian markets, but due to the antitrust policy of the People's Republic of China, the fund faced a number of problems, which led to its lack of funds to maintain margin requirements.
At the same time, the main brokers of the fund were conglomerates such as Nomura, Goldman Sachs, Morgan Stanley, Credit Suisse Deutsche Bank. They provided loans to Archegos Capital in both cash and securities. As soon as the fund defaulted on margin requirements, the above-mentioned banks simultaneously began to put up for sale stakes related to Archegos Capital.
As a result, anti-risk sentiment increased in the financial markets, due to the possible consequences of a wave of liquidation of positions. According to Reuters, banking giants such as Nomura and Credit Suisse have already warned their customers about huge losses after the sale of Chinese and American shares (by about $ 20 billion). This fact caused natural concern among investors. One of the beneficiaries of this situation was the safe US dollar, which was used s a protective tool again by the market.
The US debt market also provided the USD all the support it needs. Today, the growth of the yield of treasuries continued – in particular, the yield of the 10-year US government bonds reached 1.746% during the Asian session on Tuesday, which is the highest since January 2020. The dollar index followed this indicator, marking the borders of the 93rd figure. This is also the maximum since November last year. In other words, the US dollar recovered after Joe Biden's disappointing press conference, at which he did not mention the economic plan for infrastructure development being developed by the White House contrary to expectations. It is worth noting that the current growth in the yield of treasuries and the dollar exchange rate is associated with Biden again, who should still present his ambitious plan, which is called " Build Back Better "("Rebuild and Better") on March 31.
It should be recalled that rumors have been circulating in the American press for quite some time that the US administration is preparing a record-scale economic support plan. Currently, its details are not fully clear, but according to insider information, it includes financing road construction, bridges and railways. The program also provides for the allocation of hundreds of billions of dollars for educational infrastructure, the development of preschool education, an increase in childcare costs and additional assistance to those Americans affected by the pandemic. According to various estimates, the total cost of this program ranges from 2-3 to 4 trillion dollars. "Build Back Better" is compared in its colossal nature to George Marshall's aid program in the post-war years. In addition, this economic package will go along with tax reform, which involves increasing the tax burden for large corporations and wealthy Americans.
Joe Biden is expected to disclose the main points of "Build Back Better" tomorrow in Pittsburgh, where he launched his presidential campaign last 2019. Before this event, the yield on 10-year bonds rose again, providing indirect support to the US currency.
Meanwhile, the Euro currency is still under pressure from the "coronavirus factor". In the context of vaccination, the European Union lags far behind the world leaders – Israel, Britain and the United States, as well as its own schedule drawn up last year. In general, approximately 14 vaccinations per 100 people have been made to date in the EU. For comparison, we can say that this figure in the UK is 50/100, and in the US by 40/100. Against the background of weak vaccination rates, the situation with the spread of coronavirus continues to deteriorate. Just last Friday, European Commission's head said that the EU countries are facing the third wave of the pandemic. They are talking about tightening quarantine restrictions again in Germany and France. Merkel even allowed the introduction of a curfew.
Therefore, the current fundamental background contributes to a further decline in the EUR/USD pair. From a technical viewpoint, the pair is also showing a strong bearish trend, as proven by the major trend indicators. In particular, the Ichimoku indicator on the daily chart has formed its strongest bearish signal "Parade of Lines" – all the indicator lines are above the price chart, thereby showing pressure on the pair. The first downward target is set at 1.1740 (Bollinger Bands line on D1). The main target is the psychologically important resistance level of 1.1700.