FX.co ★ EUR/USD. Fed decides fate for SLR rule, Europe returns to AstraZeneca

The US dollar index again tested the 92nd figure today, renewing its 10-day high, while the EUR/USD bears again tested the 18th figure, renewing the daily low at 1.1870. The reason for the next downward leap was the official message from the Fed that the Central Bank will not extend the regulatory easing that was introduced in connection with the pandemic. We are talking about the SLR rule (assuming lightweight reserve requirements for treasuries), which ends on March 31.

This issue was not resolved at the March meeting of the Fed, although earlier, some congressmen called on the Fed to end the grace period. During the year, banks were exempted from SLR compliance, and at the beginning of the year, there were rumors in the market that the regulator would extend the current easing. But the Fed took the opposite decision. According to experts, now the banking sector will have to reserve significantly more equity capital for assets in Treasuries, as well as for deposits that they keep in the Fed. It is also expected that banks can "throw" securities into the market in a sufficiently large volume, thereby provoking a further increase in their yields.

Immediately after the announcement of the decision, the yield on the 10-year Treasuries jumped to 1.746%. Similar dynamics were demonstrated by 5-year and 7-year US government bonds, whose yields today showed positive dynamics. They were followed by the dollar, which strengthened its positions throughout the market. Including the pair with the euro, where the bears have been trying to gain a foothold in the area of the 18th figure for the second day.

It is worth noting that the past week was a difficult test for the dollar: at the beginning of the five-day trading day, the greenback was gaining momentum in anticipation of the March Fed meeting, then it collapsed at the end of this meeting, and literally, the next day began to regain lost positions again. In general, the fundamental background for the US dollar is positive: the regulator revised its forecasts for US GDP growth in 2021 upward (and significantly - from 4.2% to 6.5%), the last Nonfarm showed positive dynamics, the country launched the implementation of the "Plan to Save America", and the campaign to vaccinate the population against coronavirus is being implemented at an accelerated pace (2 million injections per day). Plus, there are rumors that the White House will revise its tax policy for the first time since 1993.

However, all of the above fundamental factors play a "decorative role", while dollar bulls are waiting for a powerful information driver that would allow them to break out of the flat swamp. By and large, the greenback's main problem is Jerome Powell, who continues to take a dovish stance, not succumbing to the general euphoria over the American economic recovery. For example, in an article published today in The Wall Street Journal, he reiterated his thesis that the US economy is "only at the beginning of the road", while there is still a long way to full recovery. The corresponding conclusions follow from this: incentive programs will remain in effect for a long time, and the interest rate will not be increased for several more years (the approximate period of the rate increase at the moment is the second half of 2023). At the same time, the regulator is ready to "tolerate" inflation above two percent, allowing such a scenario in advance. According to the regulator, the post-crisis growth of key indicators and the economy as a whole will be temporary in nature (for example, the forecast for US GDP growth for 2022 is only 3.2%), therefore all talks about the early winding down of QE are groundless, not to mention an increase interest rate.

Actually, trading in dollar pairs is built around this controversial issue: the greenback is growing on the signs of the recovery of the American economy and, accordingly, is decreasing on the "dovish" comments of the Fed representatives. By the way, today the EUR/USD bears met resistance amid the strengthening of the euro. The fact is that most European countries that have previously suspended the use of the AstraZeneca vaccine have announced that they will resume vaccination. This decision was made after the European Medical Agency (EMA) recognized the vaccine as "safe and effective". This news improved the fundamental background for the euro - in many cross-pairs, the single currency dominated today. However, the influence of this fundamental factor is limited in the context of EUR/USD, since Europe is quite far behind the US in terms of the total share of vaccinated citizens.

From all of the above, we can conclude that the EUR/USD bears will continue to siege the 18th figure, intending to overcome the first support level of 1.1870 (local support, which was tested four times unsuccessfully since March 10), in order to then approach the main price The 1.1800 barrier is the lower line of the Bollinger Bands indicator on the daily chart. The priority is still short positions with the above price targets.