FX.co ★ EUR/USD. Daly and de Galhau's remarks triggered a downward corrective pullback

The EUR/USD pair continues to trade in a flat, within a wide price range of 1.2150-1.2250. Yesterday, the pair's buyers managed to break through the upper border of this range, but could not consolidate above it. In view of an almost empty economic calendar, traders began to take profits, doubting the prospects for testing the level of 1.23. As a result, a domino effect occurred: many market participants began to open short positions as soon as the upward impulse began to fade, thereby provoking a corrective pullback. In turn, EUR/USD bears failed to organize the dollar rally: the pair remained within the above price level. Moreover, the price was able to retreat from local lows during the Asian session and reapproach the borders of the 22nd mark.

At the same time, it should be admitted that the upward movement is quite difficult for buyers of the pair. Traders have a hard time breaking through each next level above 1.2250, having constant short-term pullbacks. In addition, it is even more difficult for them to keep the occupied highs. Obviously, traders will not be able to enter the area of the 1.23 mark without a strong news feed.

In part, the pair's downward dynamics were due to the recovery of the dollar index. During the Asian session on Wednesday, the indicator updated the two-year low, reaching 89.52. However, the index recovered and returned to the area of the 90th figure. The immediate reason for the US dollar's strengthening was the statement of the representative of the Federal Reserve Mary Daly. The Federal Reserve Bank of San Francisco CEO said that "the Fed is in the initial stage of discussing how and when to start scaling back large-scale stimulus." This is quite an unexpected statement, amid the "dovish" rhetoric of the rest of the Fed representatives. And although Daly clarified that it is not about the near-term prospects, the hawkish intentions supported the US currency.

In my opinion, traders jumped to conclusions. There is no doubt that the US regulator will discuss the prospects for QE in light of the latest inflation release. But the dynamics of the other key indicators suggest that the Fed will not make an appropriate decision in the near future. By the way, Mary Daly concluded her speech yesterday with a characteristic phrase: "It is important for the Federal Reserve to be patient and continue its policy to support the recovery of the economy after the pandemic."

The euro was also forced to react to the rhetoric of the Central Bank representative yesterday, and the voiced rhetoric put pressure on the currency. The head of the Bank of France, Francois Villeroy de Galhau, said that the European Central Bank does not need to rush to change the pace of asset repurchases. At the same time, he emphasized that any suggestions about the reduction of buyout at the June meeting are just speculation.

In general, Villeroy de Galhau repeated the position of the ECB President Christine Lagarde, which she voiced last Friday. But unlike the Fed, there is a split in the European Central Bank over the future prospects for monetary policy. In particular, Luis de Guindos, Martins Kazaks, and Klaas Knot are in favor of the early termination of QE. Therefore, the speech of de Galhau, who is consistently dovish, affected the Euro currency temporarily.

Today, all attention will be focused on the publication of data on the growth of the US economy in the first quarter of this year. We will find out the second estimate of this indicator. It can be recalled that the initial release reflected the serious pace of the recovery process, although it did not meet the forecast level: the volume of US GDP rose by 6.4% in the three months of 2021 (with a growth forecast to 6.8%). That is, on the one hand, the indicator came out in the "red zone", but on the other hand, it showed serious growth. GDP increased by 4.2% in the 4th quarter. In particular, consumer spending on durable goods surged – the indicator grew by 41% at once, while this component was in the negative area (-1.1%) last month. The GDP price index also exceeded the forecast level almost twice – it rose to 4.1% against the forecasted growth to 2.6%. The US dollar will receive significant support if the second estimate of the above components is revised up.

It is also necessary to pay attention to the growth rate of initial applications for unemployment benefits today. The indicator has been declining for three consecutive weeks. The weekly increase in the number of applications was at the level of 590 thousand at the end of April, but a week ago, the increase was 444 thousand. This week, a downward trend is also expected – the indicator should reach 420 thousand.

In my opinion, the EUR/USD pair will trade in the range of 1.2150-1.2250 in the medium term, wherein it is located for the second week in a row. The weakness of the US currency does not allow the bears of the pair to further decline, while the uncertain positions of the Euro currency prevent buyers to consolidate higher. Therefore, we can consider long positions when approaching the lower limit of the range, and or sales when overcoming the level of 1.2250.