FX.co ★ EUR/USD: US dollar extends gains

The previous trading week turned out to be extremely successful for the US currency: the greenback added more than 1% across the board. As a result, the US dollar index managed to hit a new four-month high, rising above 92.9.

Even mixed statistics for the United States did not prevent investors from buying the American currency.

Data released on Friday showed a record 7.1% decline in personal income in February compared with the previous month. At the same time, consumer spending decreased by 1%, marking the largest drop since April 2020.

The index of consumer confidence in the United States was 84.9 in March, up from 76.8 in the previous month. This was the highest reading since March 2020.

Investors' optimistic attitude towards the greenback can be attributed to the fact that the market is betting on a quick recovery of the US economy thanks to US President Joe Biden's rescue plan as well as a quick rollout of COVID-19 vaccines.

According to strategists at Westpac, the US currency is being supported by some pretty upbeat US statistics and a successful COVID-19 vaccine rollout in the country.

"The domestic economy is doing better than expected and likely to be the case for the next few months, so that might hold the U.S. dollar up," they added.

The fact that the yield on the benchmark 10-year Treasury note had climbed by 76 basis points this year spurred traders to buy the US dollar as it reflected an improved economic outlook for the United States.

According to Capital Economics, the yield on 10-year US Treasuries is likely to continue rising and will outpace the increase in similar yields in other developed markets. As a result, the US dollar will gain ground further as well.

Capital Economics' strategists believe that the greenback will continue to strengthen against most currencies, especially against the currencies of those countries where short-term and long-term interest rates remain low, for example, in the euro area.

The US dollar has added more than 2% since early March, marking the strongest monthly gain since July 2019.

The dollar started the new week with gains as well, but its rally stalled while approaching the level of 93.00.

However, fundamental and technical factors are still in favor of the American currency.

Bloomberg experts assume that the US dollar index is on the verge of forming a bullish "golden cross" pattern. Its 50-day moving average is about to cross the 100-day moving average upwards for the first time since February 2020. In this case, the American currency may advance at an accelerated pace in the second quarter.

In addition, they noted that last week the US Dollar index had closed above the 200-day moving average for the first time since summer 2020. This is also a sign of the currency's further growth.

Meanwhile, the euro is likely to post its worst month since mid-2019.

The euro/dollar pair is coming under pressure from another wave of the coronavirus across Europe and a slow pace of COVID-19 vaccinations in the European region.

Against this background, the situation in the United States seems to be more positive, and the coming round of the new fiscal stimulus package is providing additional support to its national currency.

Germany has recorded the highest number of new daily coronavirus infections since January. Chancellor Angela Merkel is making every effort to curb the spread of COVID-19 through federal legislation. However, she is disappointed with the regional authorities' actions and is reportedly considering imposing a curfew like in parts of neighboring France.

Meanwhile, Paris is considering new restrictions as the infection spreads at an alarming rate.

Besides, the largest European countries are struggling to ramp up their vaccination campaign, after facing problems related to the vaccine supply and concerns about its safety.

Across the Atlantic, the authorities continue to accelerate the vaccination rates. More than a third of US adults have already received at least one dose of a COVID-19 vaccine. For comparison: in Germany, the figure is only 9%.

On Wednesday, US President Joe Biden is set to present a proposal that includes up to $3 trillion in new spending aimed at boosting the economy.

Another package for the US economy could cause a rise in inflation in the country and induce the Fed to raise interest rates earlier than planned. This, in turn, will have a positive effect on the US dollar.

This week's macroeconomic calendar includes the monthly report on non-farm payrolls in the United States to be released on Friday.

The range of forecasts is quite wide: from 460 thousand to 1 million jobs.

Some experts believe that real numbers will be closer to 1 million. According to them, this reading could spark reflation trade, cause a surge in US Treasury yields, and support the greenback.

Thus, tighter lockdowns in the EU and strong data on payrolls will most likely exert downward pressure on the common European currency.

The euro/dollar pair is currently trading in a downward trend, making slight pullbacks.

The level of 1.1760 acts as the nearest support. Further, the quotes will meet support at the levels of 1.1745 and 1.1690.

The levels of 1.1810, 1.1835, and 1.1875 act as resistance.