FX.co ★ EUR/USD: "Ukrainian case," hawkish expectations, and struggle for 7th figure

The bears of the EUR/USD pair do not give up trying to gain a foothold within the 7th figure. Today, traders again tested the area of two-year lows, reaching 1.0760. But in this price area, buyers have become more active again, while sellers have hurried to lock in profits. Due to these factors, the price returned to the area of the 8th figure, showing a slight corrective growth.

It should be noted that the pair is trading today against the background of an almost empty economic calendar. The most important release of today is an indicator of the increase in the number of construction permits issued in the United States. This is a secondary report, which, as a rule, does not have any significant impact on the mood of traders. Therefore, it is obvious that the tone of trading today is set by other fundamental factors, of a more global nature.

In other words, the market is again ruled by geopolitics. All the attention of EUR/USD traders is focused on the Russian-Ukrainian negotiations, which stalled two weeks ago. Almost a month has passed since the meeting of the delegations in Istanbul, however, things are still there. At first, an information vacuum formed around the negotiation process. The prolonged "silence regime" began to alarm investors, which dollar bulls took advantage of, strengthening their positions. Then no less disturbing comments began to sound.

Last week, Russian President Vladimir Putin said that the Ukrainian side had departed from its agreements in Istanbul, and now the negotiating parties "have again returned to a deadlock for themselves and for everyone." Turkish President Recep Tayyip Erdogan also commented on the situation yesterday. According to him, the negotiations between the parties are actually frozen. At the same time, he expressed confidence that "a peaceful solution to the Ukrainian crisis can be found through dialogue." At the same time, Russian Foreign Minister Sergei Lavrov said today that the next phase of the special operation has begun on the territory of Ukraine.

All this suggests that the situation is still far from being resolved. The optimism that hovered in the market after the announcement of the results of the "Istanbul meeting" (March 29) has completely come to naught. Actually, since the end of March, the dollar has been gaining momentum throughout the market, including in pairs with the euro. It is likely that the increased demand for a safe greenback will remain in force as long as the "Ukrainian case" is on the agenda. Any other fundamental factors will not be able to reverse the downward trend.

Moreover, other fundamental factors only fuel interest in the US currency. On May 4, the results of the next meeting of the US Federal Reserve will be announced, at which the regulator should raise the interest rate by 50 basis points at once.

Within 10 days prior to this event (starting next Sunday), Fed members will be required to observe a silence regime, that is, they will not speak publicly. Many of them voiced their position last week, strengthening the "hawkish mood" among traders. Williams, Waller, Daly, Barkin, Mester, Brainard, and Bullard, in particular, started talking about a more aggressive rate increase. Fed Chairman Jerome Powell also quite unequivocally announced the implementation of a tougher scenario so that the high level of inflation "does not take root."

Given the hawkish nature of the minutes of the March meeting of the Federal Reserve, it can be assumed that the regulator will decide on a 50-point increase not only at the May meeting, but also in June.

In addition, in June, the regulator will begin to reduce assets on the Central Bank's balance sheet in increments of $95 billion per month ($35 billion in mortgage-backed securities and $60 billion in US government bonds). This is quite a "sporty pace": for comparison, we can say that in the period from 2017 to 2019, the scale of QT was $50 billion per month, and it took the Fed about a year to bring the target to this.

Thus, the prevailing fundamental picture for the EUR/USD pair clearly indicates the priority of the downward direction. The growth of anti-risk sentiment against the background of increased hawkish expectations allows dollar bulls to dictate their conditions, determining the vector of price movement. Therefore, sellers of EUR/USD will continue to try to gain a foothold within the 7th figure, implementing the downward scenario. It is advisable to use any corrective pullbacks as an excuse to open short positions.

Technology says the same thing. In particular, on the D1 timeframe, the price is between the middle and lower lines of the Bollinger Bands indicator, which indicates the priority of the downward direction. The Ichimoku indicator, in turn, formed a bearish signal, which also indicates a bearish sentiment. The nearest support level (the target of the downward movement) is located at 0.0740 – this is the lower line of the Bollinger Bands on the daily chart.