The dollar sold out this week to the sound of hawkish comments from the Federal Reserve. Yields were approaching the highest levels in the last three years, which also supported the US currency. By the end of the week, the greenback showed a slight weakness, which is more like a "minute" rather than a directional decline. Nevertheless, the mark of 99.00 on the dollar index does not yet lend itself. This week, this level is a tough nut to crack.
The bullish stance on the dollar is still in place. However, with further development of the downward corrective movement, the quote may sink to a weekly low around 97.70 in the short term.
The euro remains a hostage of the European Central Bank's soft monetary policy, which is not yet able to respond to the growing inflation by raising the rate. Tighter policies could increase stagflationary risks for the economy. If we take into account that the Fed will raise the rate by an unprecedented 100 bp in the next two meetings, then the EUR/USD pair has no chance of recovery at all. Risks will blend down. Now it looks like the quote is completing a correction after bouncing off the 1.0800 mark and is approaching a convenient level for opening short positions.
The European economy is moping, business confidence is falling in the countries of the bloc against the backdrop of the Russian-Ukrainian conflict. Germany's Ifo business climate indicator sank to a 14-month low in March. Trade tensions and Russian retaliatory sanctions remain a major risk to the eurozone economy. It is the imbalance that has arisen in trade relations between the EU-Russia and the Russia-US that determines the weak positions of European currencies and the Japanese yen against the dollar. This means that during the de-escalation, the US currency will go on the defensive.
On Friday, the euro recovered a little after the news about the energy deal between the US and the EU. An attempt to settle above the 1.1000 mark is visible, but it will not be easy for bulls to enter a growth path. EUR/USD may end Friday higher, but going forward, any advance will face strong resistance at 1.1045. Support is at 1.0985 followed by 1.0965.
At the end of the week, traders win back energy news. America and Europe signed a deal on gas supplies. The states have agreed to increase supplies to help the EU move away from Russian gas imports. Within the framework of this year, at least 15 billion cubic meters will be supplied, with an expected increase in the future. By 2030, it is planned to expand LNG supplies to 50 billion cubic meters, according to a White House fact sheet.
The volumes are significant, but not enough to replace Russian gas. Here deliveries usually exceed 100 billion cubic meters per year. As for the reaction of the EU to the Kremlin's demand to pay for gas in rubles, there has not yet been any.
As the Russian-Ukrainian issues begin to fade, the focus is likely to return to yield differentials, which should indicate a further decline in the EUR/USD pair, economists write. Thus, OCBC Bank predicts a further decline in the euro. The bearish levels are 1.0950 and 1.0900.