Since the positions in the monetary policy of the European Central Bank (ECB) and the Federal Reserve System (FRS) have a very significant impact on the price dynamics of EUR/USD, today's review of the main currency pair of the Forex market will again begin with this important topic. So, as we all know, the Fed has more than unequivocally determined for itself the path of tightening monetary policy, which implies the process of raising the federal funds rate, as well as unloading the balance sheet of the American Central Bank. In previous articles on the main currency pair of the Forex market, it has been repeatedly noted that the rhetoric of speeches by senior Fed officials has a pronounced aggressive "hawkish" rhetoric. Many of the members of the Open Market Committee (FOMC) of the US Federal Reserve are calling for the next increase in the interest rate by 50 basis points at once.
Let me remind you that at the March FOMC meeting, it was decided to increase the rate by 25 bps. In addition, in May, the Fed intends to start reducing its balance sheet, although earlier it was supposed to resort to this a little later. The withdrawal of excess liquidity from the world's leading economy, as well as the faster process of raising the key interest rate, are certainly positive factors for the US dollar. However, the market has known about this for a long time, which means that the "hawkish" position of the Fed is already largely embedded in the price of the US currency. I do not get tired of mentioning this, since this factor may somewhat limit the potential strengthening of the US dollar against all its main competitors. Moreover, you and I remember perfectly well and saw how after the March rate hike, the "American" declined against the single European currency.
Regarding the ECB's position, I would like to emphasize once again that it is much more restrained compared to the Fed's monetary policy and, by and large, is still mostly wait-and-see. Thus, ECB President Christine Lagarde has repeatedly stated that inflation itself will eventually decrease to the target level of 2%. However, how long it will take remains a mystery. However, some market participants hope that high inflation in the eurozone will push the ECB to take more decisive action, and the European Central Bank may raise the main interest rate twice this year. That's true, but here it is necessary to take into account the significant difference in the economic situation that is observed in the United States and the euro area. It's no secret that the American economy, unlike the European one, is in much better shape. The labor market is strong, and other macroeconomic indicators also do not give reason to doubt that the US economy has returned to its condition, which was observed before the COVID-19 pandemic.
There is little doubt that the Fed will be able to cope with high inflation due to the steps taken. At least, the current economic conditions are very favorable for aggressive rate hikes, which certainly cannot be said about the European economy. I believe that it is the significant discrepancy between high inflation and weak economic growth that forces the ECB to exercise caution and restraint regarding tightening its monetary policy. It is quite natural that such a position of the European regulator does not support the single European currency, but, on the contrary, is a negative factor for it. But the conflict in Ukraine is still considered the main risk factor for both central banks. Russia's military special operation has not yet fully met the Kremlin's expectations. However, the negotiation process between Moscow and Kyiv continues, which means that there is hope that the parties will come to a compromise acceptable to them. Nevertheless, the situation is quite complicated, and it may take a long time to achieve peace.
Weekly
Following the results of trading on April 4-8, the EUR/USD pair showed a fairly strong downward trend and closed the week at 1.0875. The highlighted long upper shadow of the previous weekly candle did not remain without the attention of market participants, and in many ways, it became the harbinger of the implementation of the downward scenario. We are not taking into account the factors outlined above but consider only the technical picture. In my materials, I constantly pay attention to the shape and shadows of Japanese candlesticks, because they very often give an excellent idea of the further direction of the quote. As you can see, the market often works out emerging signals. Earlier, it was noted that the key support level of 1.0800 is the focus of sellers.
I believe that if something extraordinary does not happen this week and the US dollar continues to be in demand, this significant level will be tested for a breakdown. However, it is necessary today to highlight the main event for EUR /USD, which will take place this week, on Thursday. On this significant day, the ECB will make its decision on interest rates, and a little later a press conference will be held by the head of this department, Christine Lagarde. Since there is practically no chance that the rate will be raised, the main event will be the rhetoric of the ECB president's speech. In the event of its tightening and signals of readiness to start the process of raising rates, the euro may receive strong support, and the sentiment for the pair will change sharply from bearish to bullish. Let's analyze this probability in more detail closer to the event itself.
Daily
As a result of a false breakdown, I rebuilt the pink resistance line at a new second point, and now its parameters are 1.1495-1.1185. This is one time. The second thing you need to pay attention to is the highlighted Friday candle, which has a clear reversal character. Now briefly on the current recommendations. Since the decline has already been quite prolonged, and EUR/USD has fallen into a strong technical support zone of 1.0840-1.0800, after which the pair drew a reversal pattern of candle analysis, sales, despite all the factors in favor of the US dollar, I think are already quite late and risky. Most likely, the euro bulls will try to use the candle signal received on Friday to move the course in a northerly direction. If this happens and the pair returns above the landmark technical level of 1.0900, it is quite possible to expect a continuation of the rise in the price zone of 1.0940-1.0970.
Considering that there is a strong resistance of sellers here, as well as the level of 23.6 on the Fibonacci grid, stretched to a decrease of 1.1495-1.0806, sales from the selected area look technically absolutely justified. Most likely, growth in this area, if it takes place, will not take place today, so this recommendation is aimed at a few days. In tomorrow's article on EUR/USD, we will consider smaller time intervals, where we will try to find the best options for entering the market. Thus, it can be stated that, despite the pressure, EUR/USD has a signal for growth, albeit a corrective one. Based on this, and let it not seem strange to someone, judging by the technical picture, I do not rule out the growth of the single currency against the US dollar at all. However, Thursday's events will decide a lot.