The EUR/USD pair continues to dive downward against the backdrop of a sharp strengthening of the American currency. Today's US dollar index reached a multi-week high, marking 102.88: the last time the index was at this height was at the end of March.
Today's surge in the greenback is due to the strengthening of anti-risk sentiment. The negotiations between Republicans and Democrats regarding raising the debt ceiling have again ended without any result, despite the preceding optimistic statements of Joe Biden. The situation is still at a standstill.
This turn of events has supported the safe dollar and put pressure on the EUR/USD pair. The market reacts quite sharply to the news flow around a possible default on the national debt. Therefore, in this case, as long as the negotiating saga is not over, the dollar will be in high demand. But as soon as the presumed happy end comes, market participants will breathe a sigh of relief, and the compressed spring will unwind, sweeping away the positions of the American currency.
However, there are no clear prerequisites for a "happy ending" so far. Republicans oppose raising the ceiling if Democrats do not agree to cut federal budget spending.
Yesterday, US President Joe Biden met with House Speaker Kevin McCarthy (who represents the Republican Party) and discussed resolving this issue. The talks ended with "statements of intent." For example, McCarthy stated that the positions of the negotiating groups are "still far apart." But at the same time, he assumed that reaching an agreement "by the end of the week is quite possible," but for this, "a lot more work needs to be done."
Biden, in turn, also did not go into the details of the meeting, admitting that "the sides still have something to work on." At the same time, he expressed confidence that a default on the national debt is "not an option" for all sides of the political confrontation. Obviously, the head of the White House tried to calm the public. Still, the subsequent news that the president canceled trips to Australia and Papua New Guinea due to the situation with the national debt eloquently illustrated the seriousness of the situation.
In a special White House statement, it is indicated that the US President will return to Washington after the G7 summit in Hiroshima (which will take place from May 19 to 21) "to continue meetings with congressional leaders and ensure that actions are taken by the deadline to prevent default."
In other words, the situation as a whole continues to heat up. The press continues to fuel the situation, painting apocalyptic scenarios of a possible default (the first in US history), and market participants continue to buy up the greenback, provoking a dollar rally actively. The fire was further fueled today by Treasury Secretary Janet Yellen, who once again reminded us that by June 1, the government would not have enough money to pay bills.
Interestingly, most experts, analysts, and currency strategists are confident that American politicians will prevent the default. After active political trading, the parties will probably still find a compromise solution. The question is: when exactly will this happen?
The experience of previous similar crises suggests that a compromise may be found literally in the last days or hours before the "apocalypse" (in this case, June 1). And the closer the "X hour" will be, the more the markets will be nervous. Here it is necessary to recall 12 years ago when the fight between President Barack Obama and the Democratic Senate with Republicans in the House of Representatives lasted until the last moment. The threat of default was so real in the eyes of market participants that traders were seized with panic, and the US credit rating was downgraded. The current situation may unfold according to a similar scenario.
Thus, if we compare the dynamics of the EUR/USD price with the latest events around the negotiation process, we can conclude that the pressure on the pair will persist until the parties find common ground on this issue. Because the next negotiations involving Biden will only occur on the weekend, it can be assumed that the pair will demonstrate a downward dynamic soon. At the same time, all other fundamental factors will play a secondary role; the focus will be on American events.
From a technical point of view, today's EUR/USD pair tested the support level of 1.0810 (the upper border of the Kumo cloud on the daily chart). If the bears overcome this price barrier, the next target of the southward movement will be the 1.0750 mark, corresponding to the Kumo cloud's lower line in the same timeframe.