The EUR/USD pair showed a downward trend at the start of the trading week. The US dollar index strengthened its positions during the Asian session, moving by the inertia of Friday trading. It can be recalled that the price of the US dollar began to actively rise throughout the market last Friday afternoon, although the pair was testing the borders of the 1.20 level during the European session.
Joe Biden came to the aid of dollar bulls, who still agreed on a resonant bill on infrastructure development in Congress after weeks of negotiations. Looking ahead, it should be noted that the final version of the project is markedly different from the initial one: the compromise package of measures provides incentives totaling $973 billion over a five-year period or $ 1 trillion 250 dollars over 8 years.
Before the previous trading week ended, the US President announced a cross-party agreement between Democratic and Republican senators on a deal to modernize infrastructure. This positive information for the US dollar has one problem – Biden clarified in a corresponding statement that the deal reached would not include the cost of additional assistance to American families, although he said earlier that the infrastructure project should go along with the law on the allocation of $ 6 trillion to help American families. Biden even voiced an ultimatum. He said that if only the infrastructure development law came to him for signature, he would not sign it. But yesterday, he separately made an official comment that he would not veto the agreed document.
The US dollar reacted to the significant news with growth, albeit limited. On the one hand, a significant and even unprecedented event took place, given the number of funds invested in the country's infrastructure. The Head of the White House initially insisted that his initiative receive bipartisan support, although the Democrats had an alternative option in reserve – they could apply the procedure of "budget reconciliation" and then pass the bill by a simple majority. However, this option also carried risks, as several Democratic senators opposed raising the corporate tax rate (at least to 28%). At the same time, the Democratic Party in the Upper House of Congress does not have "spare" votes – they have a 50/50 ratio with the Republicans and the decisive vote of US Vice President Harris. If at least one Democratic senator opposed it, the bill would not pass the millstone of the Senate. It is worth noting that when the previous aid package was adopted, one of the senators had to be literally persuaded for almost 11 hours. As a result, he voted in favor, and the $ 1.9-trillion law was sent to the president for signature. However, several Democratic senators opposed Biden's infrastructure plan.
According to the American press, several rounds of Biden's negotiations with the Republicans were unsuccessful: the US President asked congressmen to submit to him a "serious counter-proposal" to continue consultations. It is also known that he has set and postponed deadlines several times: if the parties had not reached a compromise solution by the end of June, the White House would have launched an alternative scenario – the mechanism of "budget reconciliation", making a risky bet on the consolidated position of the Democrats. This scenario was avoided but at the expense of a compromise solution.
In fact, the compromise solution did not allow the dollar bulls to take full advantage of the situation. First, the information occasion was "won back" in early April, when only the first rumors about a large-scale infrastructure plan appeared in the American press, the volume of which was initially estimated at 3 trillion, and then at 2 trillion 600 billion dollars. In the process of negotiations with the Republicans, the bill faded, and as a result, the parties agreed on the above figures (expenditures in the amount of $973 billion over a five-year period or $ 1 trillion 250 dollars over 8 years). Given traders' initial expectations, the final version of the document could not provoke a dollar rally.
Meanwhile, the US dollar was indirectly supported by the publication of the American data on expenses and incomes last Friday. The indicators came out for the most part at the level of forecasts. The main index of personal consumption expenditure (Core PCE Price Index) rose to 0.5% in monthly terms and accelerated to 3.4% in annual terms (the best result since February last year). The only disappointing factor was personal spending, which fell to zero, contrary to forecasted growth of 0.4%.
Thus, Friday's fundamental factors had a certain impact on the dynamics of the US currency, but taking into account all the above-mentioned pitfalls, it can be assumed that this influence will be temporary. This week's economic calendar is full of important releases: the US consumer confidence will be published tomorrow, followed by the European inflation the next day, the ISM manufacturing index on Thursday, and, finally, Nonfarm on Friday.
If we talk about trading decisions, we should consider the fact that the downward impulse provoked by last Friday's events disappeared at the start of the European session on Monday. This suggests that the US dollar is still quite vulnerable, and traders are taking a wait-and-see attitude. Such a fundamental background suggests a flat, the scope of which has narrowed from the range of 1.1850-1.1950 to 1.1900-1.1980. In the medium term, a decline to the lower border of this range can be used to open longs, while it is advisable to consider sales when approaching the borders of the 20th mark.