FX.co ★ Euro and the US dollar continue to fight for control in the currency market

The race for leadership continues between the American and European currencies. The competition between these two currencies keeps the market in good form, heating up an already tense situation.

On the morning of June 2, the EUR/USD pair was sharply trading around the level of 1.2214, gradually rising from the previous close at 1.2211. But compared to June 1, the main currency pair loses noticeably, declining from the level of 1.2230. It can be noted that an important resistance level for the euro has formed near this level.

In order to strengthen the "bearish" sentiment and to break through the support level of 1.2212 and the mirror level of 1.2200, the EUR/USD pair will head to the levels of 1.2163, 1.2128, and 1.2102. In the other scenario, the instrument will remain within the price range of 1.2212-1.2232. It can be noted that the ANZ Research Bank's experts expect the pair to slowly increase to the level of 1,2300 in the second quarter of 2021, and to 1.2400 and to 1.2600, respectively in the third and fourth quarters.

However, the continuation of the growth may become more complicated amid the high probability of curtailing the Fed's stimulating policy. There are ongoing discussions about this in the market, but the implementation of these plans is still uncertain. The current situation keeps the US dollar in suspense, and its dynamics are far from stable. This week, the US dollar is trading near five-month lows, yielding not only to the Euro, but also to commodity currencies.

Earlier, Fed representatives stated that they expect the price pressure to ease, considering it to be temporary. As for the monetary policy (MP), the regulator is not in a rush to change it. So, the Fed will continue its stimulating strategy in the near future, but this can change anytime.

The current situation is in favor of the Euro currency. It strengthened after the publication of a positive report on the inflation rate in the euro area, which exceeded the ECB's target of 2%. The market was also inspired by the business activity index (PMI) for industrial production of 19 eurozone countries: it surged to a record of 63.1 points. The decline in the EU unemployment rate from March's 8.1% to the current 8% also added to the positive trend. The leader in this indicator was Germany, where the unemployment rate remained close to 6%.

Experts are optimistic with regard to the Euro, expecting its dynamics to accelerate, which cannot be said about the US dollar. Currently, analysts do not see any growth impulses for USD. Currency strategists at ING Bank said that the dollar will continue to decline, as investors do not expect the Fed to raise the interest rate. If so, this will have a vague effect on the EUR/USD pair in the short to medium term, although ANZ Research claims that the gradual upward trend of the pair will remain unchanged. The current situation is influenced by the reassessment of the eurozone economy and the successful vaccination against COVID-19.

It was also stated that the Euro will take control while the ECB's existing level of purchases of government bonds is maintained. Based on the preliminary forecasts, the regulator will maintain the current monetary policy and bond purchase (QE) program after the next meeting, scheduled on June 10. ANZ believes that the emergency government bond purchase program, launched at the height of the pandemic, will end in March 2022. However, there may be a heated debate about the tapering of the QE program before this. ANZ emphasized that it will change the yield curve upwards and significantly support the Euro currency.