The daily chart of the EUR/USD pair resembles a piano made up of black and white keys: on the 1D chart, daily candles have formed a black and white pattern. Bears and bulls alternately seize the initiative, but at the same time, they cannot break out of the price range of 1.0970-1.1080. On Monday, the round ended with a "victory" for the bulls: the price climbed to 1.1051. On Tuesday, bears took the initiative, bringing the pair back to the lower limit of the range - to 1.0965. On Wednesday, EUR/USD bulls went on the offensive again, testing the upper line of the Bollinger Bands indicator on the daily chart (1.1070).
Such price dynamics reflect just how indecisive traders are - both bulls and bears of EUR/USD. In anticipation of key events of the week, market participants take profit at the first opportunity. On Thursday, we will learn the data on the growth of US GDP in the first quarter, while on Friday the core PCE index and the report on the growth of inflation in Germany will be published. There is intrigue on both sides, so the pair is essentially standing still, although it demonstrates intraday volatility.
The EUR/USD pair follows the greenback
In fact, the pair is repeating the trajectory of the US dollar index (especially when comparing the daily charts of the currency pair and DYX). The greenback, in turn, responds to the strengthening/weakening of risk aversion sentiments.
For example, on Wednesday, the dollar is giving up its positions amid increased interest in risk assets. Strong enough profit reports from major tech companies, which were published at the end of the US session on Tuesday, improved the mood of market participants and had a negative impact on the dollar. Financial results for the first quarter were reported by companies such as Visa, Alphabet, and Microsoft. Overall, the news background is optimistic: futures on US stock markets are mostly growing. Market participants reacted, for example, to the news that Microsoft will invest in AI (artificial intelligence). This news led to an 8% increase in the company's shares. It was also announced that Alphabet began a share buyback of $70 billion (after which their pre-trading price grew by more than 1%). Amid such a news flow, on Wednesday, the US dollar index lost all of the previous day's gains, returning to the 100-figure area.
Decline in hawkish expectations
Interestingly, the greenback weakens even amid relatively good macro data. At the start of the US session on Wednesday, data on the volume of durable goods orders in the US for March were published. Experts predicted conflicting dynamics: the total indicator was expected to rise to 0.8% (from the previous value of -1.0%), and excluding transportation - to decrease by 0.2%. But in reality, both components of the report came out in the "green": the volume of orders increased by 3.2% (the best result since December of last year). Excluding the transport sector, the indicator grew by 0.3%, excluding the defense industry - by 3.5%.
But despite the "green tint" of this release, the dollar continues to lose its positions ahead of the most important macro data that will be published on Thursday and Friday.
Considering the previous trajectory of the EUR/USD pair, we can assume that the bulls will try to break out of the price range of 1.0960-1.1070 and possibly even try to test the 11th figure. However, it is not worth expecting the development of a stable uptrend before the release of the US GDP report (the release will take place on April 27, at the start of the US session). Most likely, traders will take profit in the area of daily highs, followed by a bearish pullback.
The significance of Thursday's report is difficult to overestimate. Especially in combination with the core PCE index, which will be published on Friday. According to the CME FedWatch Tool, the probability of the Fed raising its rate by 25 basis points at the May meeting has dropped to 75% (on Tuesday, this probability was almost 90%). Accordingly, the chances of maintaining things unchanged have increased to 25%. If the US GDP report in the first quarter comes out in the "red" (according to forecasts, GDP should grow by 2.0%), the probability of raising the rate at the May meeting will decrease again. This fact will put pressure on the greenback, when on Tuesday, the market was almost certain of a rate hike.
Hawkish expectations weakened after the shares of American bank First Republic fell almost 50% amid news of massive withdrawals of deposits by the bank's clients. The total volume of the bank's deposits fell by 41% in the first quarter (to $104.5 billion) even after a consortium of banks injected $30 billion to prevent the bankruptcy of the regional lender. Without this cash infusion, deposits would have fallen by more than 50%. Now US regulators are trying to stabilize the situation, but fears about the American banking system, which had barely subsided, are back in play. After the bankruptcy of three American banks in March, markets are very sensitive to such news triggers.
Conclusions
In my opinion, the pair retains the potential for developing an uptrend, but at the moment, long positions look too risky ahead of the release of the US GDP report. Despite the favorable fundamental background for the growth of EUR/USD, traders may massively take profit when approaching the 11th figure (or after testing the target of 1.1100). Therefore, it would be better to take a wait-and-see position on the pair, given the high degree of uncertainty.