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When the growth in Treasury bond yields returns interest to the US dollar, the epidemiological situation in Europe doesn't seem to improve, and the ECB representatives put pressure on the euro with currency interventions, it should not be surprising that the EUR/USD bulls cannot gain a foothold above the base of the 22nd figure and are forced to retreat at the end of winter. March is a seasonally strong month for the US dollar, which increases the risks of developing a corrective movement towards an upward trend in the main currency pair.
It would seem that the "dovish" rhetoric of Jerome Powell, who noted that the Central Bank will be guided by factual data in making decisions, and not by signals from financial markets, should have dealt a serious blow to the dollar. At first, this is what happened - the "bulls" on EUR/USD stormed the resistance at 1.215 and pushed the quotes up to the maximum level since the beginning of January. Unfortunately, the music did not last long for them. The debt market decided to test the strength of the Fed's position. The rise in US Treasury yields to annual highs will increase the risks of an earlier start of monetary policy normalization than Powell says.
The epidemiological situation in Europe does not help fans of the euro either. The number of COVID-19 infections continues to grow, vaccinations are proceeding extremely slow, the Czech Republic is preparing for the third wave of the pandemic, and German Chancellor Angela Merkel urges not to rush out of the lockdown. It is better to do this gradually so as not to face new problems.
Dynamics of the number of infections in Europe and the USA
The pressure on the euro is exerted by the verbal interventions of the ECB. Christine Lagarde, Philip Lane, and other officials argue that the central bank is closely monitoring the development of the nominal yields of long-term bonds in the Eurozone and is ready to intervene if necessary. Its €1.85 trillion emergency asset purchase program through April 2022 is far from exhausted. To counter the rise in yields and the associated potential strengthening of the euro, the volume of transactions can be increased.
The Federal Reserve, on the contrary, prefers to close its eyes to the growth of the rates of the US debt market, explaining it by believing in the rapid recovery of the US economy. This difference in the views of central banks plays into the hands of the bears on EUR/USD. Moreover, due to the rally in yields, US stock indexes are falling. Many companies are starting to look overpriced. Worsening risk appetite is a reason to buy the US dollar.
Since March 1975, the dollar, as a rule, has strengthened against its main competitors, and if the statistics on the US labor market do not disappoint, the EUR/USD correction risks continuing. The market response is likely to be the same as with the number of jobless claims and orders for durable goods. The strong data pushed yields higher, the S&P 500 plunged and the dollar strengthened.
Technically, the targets for the Wolfe Wave pattern on the EUR/USD daily chart were fulfilled. After that, a pin bar was formed, signaling a high probability of a rollback. In my opinion, the fall of the euro to 1.208 and 1.2 should be redeemed.
EUR/USD daily chart
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