FX.co ★ EUR/USD. Euro stumbled over IFO

Today, the euro-dollar pair tested the 21st figure for the first time since February of this year, moving along the momentum of the upward trend. But the traders could not keep the highs: after updating the multi-week high at 1.2117, the pair turned 180 degrees and returned to the area of the 20th figure. "The first pancake turned out to be a lump": the bulls tried to storm the next price barrier and failed, but at the same time were able to identify their goals. And these goals are located above the 1.2100 target: to develop an upward movement, EUR/USD bulls need to overcome the upper line of the Bollinger Bands indicator on the daily chart, which corresponds to the 1.2150 mark. Given the general weakness of the US currency, traders will be able to enter the area of the 21st figure again in the medium term, and without any special "objections" from the bears. But EUR/USD bulls may need an additional information boost in order to overcome the resistance level of 1.2150.

By the way, today's turn to the downside is not associated with the strengthening of the greenback, but with the weakening of the European currency. Strong PMI data, which was published last Friday, warmed up the market - traders expected a similar breakthrough from the IFO. So, the German business activity index (PMI) in the manufacturing sector in April came out in the green zone, ending up at 66.4 points. The indicator has been steadily growing since the beginning of the year, and it updated the annual high in March (66.6 points). This month, the indicator came out almost at the same level, reflecting the recovery processes. The German PMI slightly fell in the service sector, but still remained above the key 50-point mark.

Unfortunately (for EUR/USD bulls), the German IFO indices did not show a similar "breakthrough" of growth, as it fell short of the forecast values. Thus, the IFO business environment indicator came out at 96.8 points, with a growth forecast of up to 98 points. The indicator of economic expectations from the IFO again fell below the hundredth mark, at the level of 99.5 points (with a forecast of growth to 102 points). As you can see, the published indicators are not far from the previous month's highs, but at the same time they were in the red zone. This fact cooled the ardor of EUR/USD bulls – the pair retreated from the conquered heights. At the same time, the remaining dollar pairs of the major group behave quite phlegmatically today. The US dollar index is still within the 90th figure (at three-week lows), drifting in a narrow range. The greenback actually ignored the rather weak release of data on the growth in the number of orders for long-term goods. The indicator fell significantly short of the forecast level - instead of the expected growth to 2.5%, the indicator grew to only 0.5%. And if the greenback actually ignored this release, the debt market reacted accordingly: the yield on 10-year treasuries fell to 1.559%, while it was at 1.594% at the start of the US session.

In my opinion, the euro-dollar pair's decline is more of a technical nature, while today's release from the IFO served only as a formal reason for a price correction. An additional argument for opening short positions was the news that the European Commission has prepared a statement of claim in court against AstraZeneca. Brussels is unhappy with the delays in the delivery of drugs and the company's inability to develop a "reliable strategy for future deliveries."

And yet, in my opinion, the aforementioned fundamental factors are unlikely to "make heavy weather" for the euro. In particular, legal battles with vaccine manufacturers (so far) do not affect the pace of vaccination in the European Union. On the contrary, the pace of immunization in Europe is gaining maximum momentum. About 15 million people are vaccinated every week in European countries. In total, at the moment, residents of the European Union have made about 130 million vaccinations (at least one dose was received by 23% of the population). Representatives of the Czech Republic, France, the Baltic States and Finland announced the quarantine exemptions (planned or already introduced). Representatives of Germany also reported "cautious optimism". All of these factors will undoubtedly provide background support for the single currency.

The dollar, in turn, is waiting for the April Federal Reserve meeting. According to many experts, the head of the Fed will voice his dovish position again. This stance boils down to the fact that the central bank will ignore the possible jump in inflation (and other macro indicators) in the second half of this year, without worrying about the "overheating" of the economy. According to the general expectation of the market, the Fed will announce the curtailment of QE no earlier than the summer of 2022, but we should not expect any temporary guidance from the regulator at the moment. Moreover, Powell may be pessimistic about the prospects for growth in the US economy next year (the March forecasts directly indicate a possible slowdown in growth – both in 2022 and in 2023). Therefore, the results of the April meeting may put some pressure on the greenback, provoking another northern impulse for the EUR/USD pair.

And so in my opinion, short positions look unreliable right now. Long positions are still prioritized with 1.2150 as the main target (the upper line of the Bollinger Bands indicator on the daily chart). The correction decline has stalled at 1.2080 (the upper limit of the Kumo cloud on D1): this fact indicates how bears are indecisive. However, this is not surprising, given today's dynamics of the US dollar index - the pair retreated from the highs it won only due to the weakening of the euro, while the dollar remained under the background pressure of many circumstances (by the way, on Wednesday, not only the announcement of the results of the Fed meeting is expected, but also the speech of the US president in Congress, where he presents the draft tax reform). All this suggests that the upward trend of EUR/USD has not yet exhausted itself.