FX.co ★ EUR/USD. Volatile Friday: Biden's "Big budget" and core PCE's record growth

The euro-dollar pair is testing local price minimums again. Buyers of EUR/USD are clearly unlucky: as soon as the price crosses the resistance level of 1.2250, the US dollar receives fundamental support, preventing traders from testing the area of the 23rd figure. Then the downward impulse fades away, and the pair regains the lost points until it hits the price ceiling again.

It is noteworthy that a wide variety of fundamental factors provide short-term support to the greenback. For example, at the beginning of the month, the dollar strengthened throughout the market amid a record rise in inflation: the abrupt rise in the April CPI brought the issue of early QE rollback to the agenda. Only after a week of verbal pumping by the representatives of the Fed, the dollar returned to its previous positions. Last week, dollar bulls were inspired again - this time by the minutes of the last Fed meeting, where some members of the regulator suggested considering the issue of tightening the parameters of the current ultra-soft policy, "if the economic recovery continues to gain momentum." Seizing on this phrase, traders again remembered the inflationary release, while "forgetting" about the failed nonfarm, weak retail sales, and declining industrial production. After Fed representatives "reminded" market participants that on the basis of a single release, the regulator will not adjust the parameters of monetary policy, the greenback has once again weakened its position.

And this week the dollar is on a roller coaster again. At the beginning of the trading week, the US dollar index renewed its 2.5-year low, being under pressure from negative macroeconomic releases and "dovish" comments from Fed officials. However, on Thursday, dollar bulls again reminded of themselves, once again not allowing buyers of EUR/USD to develop an upward trend. Initial support for the greenback was provided by San Francisco Federal Reserve President Mary Daly. According to her, "the Fed is in the early stages of discussing how and when to start phasing out large-scale stimulus." The hawkish tone of her rhetoric surprised investors, after which the dollar index bounced off the lows and returned to the borders of the 90th figure.

But the main driver of the growth of the US dollar was Joe Biden, or rather, the budget he initiated for the next year. The information is still not official, but it was spread by the most authoritative and influential American media. According to the New York Times, President Biden intends to propose a budget for the next fiscal year in the total amount of $6 trillion, which is about a third more than the level of spending before the pandemic. The White House plans to increase investment in infrastructure, social programs, and other community projects as part of efforts to rebuild the country. According to insider information, the president plans to fund these initiatives by raising taxes on corporations and high-income individuals.

Let me remind you that the new financial year in the United States begins in the fall, on October 1. According to the established procedure, the head of state first announces the budget proposal, after which the initiative is considered by the US Congress. According to US media reports, at least six Democratic senators are not ready to support the White House's initiative to raise the corporate tax rate. At the same time, in the current conditions, the opinion of even one Democratic senator is of key importance, since the Democratic Party does not have "spare" votes in the upper house of Congress. Republicans, in turn, reported their categorical opposition to the tax hike.

Nevertheless, Biden's "big budget" project is supporting the dollar bulls, thus exerting similar pressure on the EUR/USD pair.

Today's macroeconomic statistics also play in favor of the dollar. The US annual core PCE inflation jumped to 3.1% in April, with a growth forecast of 2.9%. This is the strongest growth rate since 1992 (!). According to many experts, the indicator of the price pressure of consumer spending, and above all its core indicator, is the "most preferred" by the Fed members in the context of the analysis of inflationary processes. Therefore, today's release has significantly strengthened the position of dollar bulls. And although the Fed members can react to this publication rather calmly (having declared that the growth of inflation indicators is temporary), in the medium term the US dollar has received a trump card for its recovery.

Against the background of the general strengthening of the greenback, the EUR/USD pair renewed almost two-week price lows, heading towards the base of the 21st figure. At the moment, the pair is testing the support level of 1.2140 (the middle line of the Bollinger Bands indicator on the daily chart). There is another support nearby - the level of 1.2120 (Kijun-sen line at D1). Taking into account the Friday factor, these levels can resist: many market participants will close short positions without risking leaving open orders over the weekend. But the further dynamics of EUR/USD depends on whether the bears push through the above support levels or whether the downward impulse will once again fade away. In the latter case, the pair will already return to the range of 1.2150-1.2250. If the demand for the US dollar does not decrease, then the pair will go one step lower, into the price corridor 1.2000-1.2100.