13.04.202116:09 Forex Analysis & Reviews: EUR/USD: Downtrend likely to continue

Today, market participants are awaiting data on the inflation rate in the United States. The figure is fundamentally important for financial instruments where the US dollar is presented. However, it could trigger just a short-term directional movement. Investors expect the inflation rate to grow. Overestimated inflation expectations may disappoint them and exert downward pressure on the US dollar.

The EUR/USD pair failed to consolidate above the 1.1900 mark and continued to move in a sideways trend. The current consolidation around 1.1900 is the most likely scenario at the moment. An upward movement is possible, but it may be modest and volatile.

In case of a successful storm of buyers, the euro will most likely rise to 1.1950 or 1.2000. The price will hardly be able to advance higher. The rebound of the EUR/USD pair from 1.1700 was impulsive without a correction. To turn up, the quote must form a reversal pattern, but this is no sign of its formation yet. If the price tests the 1.2000 level, the pair is expected to make a significant downward correction, analysts say.

Notably, the euro has traded around the 1.19 mark for four trading sessions amid no significant events in the markets. Meanwhile, on Monday, the US Treasury made a huge bond issuance. Another bond offering is scheduled for Tuesday. The market should react to this event, driving the US dollar up. In this case, the EUR/USD pair will fall below 1.1900.

However, we may not see the market's reaction to this news this week. In this case, traders should focus on the next bond offering, which is set to be held on April 21 and 22. The largest volumes of Treasury securities will be issued at the end of the month - on April 26 and 27. In this regard, the US dollar is more likely to rise than fall.

In general, the situation is rather uncertain as for the euro as well as the macroeconomic picture for the eurozone. Investor economic sentiment in the German economy fell to 70.7 in April from 76.6, while economists expected the indicator to rise to 79 points.

Meanwhile, the index of current economic conditions in Europe's leading economy rose to minus 48.8 from minus 61 in March, which is better than expected. The euphoria among market participants began to wane. However, the ZEW indicator of economic sentiment is still at a very high level, and the current situation is assessed more positively than in March.

On the one hand, a strong economic recovery in the United States and a weak one in the euro area does not benefit the European currency. On the other hand, strong economic growth in the US contributes to a recovery in the global economy, which will certainly provoke an increase in risk appetite.

In March, the US budget deficit rose considerably compared to the previous year, and a huge deficit tends to put downward pressure on the US dollar. In addition, with a strong economic rebound, the United States is likely to need a weaker dollar in order to support the effects of the stimulus packages deployed by the government. Thus, the US trade deficit grew to a record $71.1 billion in February.

There are facts in favor of a weaker dollar. At the same time, given that Europe's economic recovery is lagging that of the United States, the arguments for a stronger euro are not enough as well. Besides, do not forget about the accelerated pace of quantitative easing by the ECB.

Arguments for a weaker dollar are valid in the longer term. It is too early to talk about a weaker greenback, analysts say. A decline in the American dollar may again lead to a rise in US government debt yields, and the US does not need it now.

Thus, buyers of the EUR/USD pair will not be able to push the quotes above 1.2000. The pair is likely to decline. The quotes will continue trading in a downtrend, while a rebound from 1.1700 to 1.1900 is just a correction.

By the end of the year, the euro may advance to the level of 1.2000 and above. The scenario suggesting that the European currency will continue to trade near the current levels is possible but not logical. EUR/USD is a trending pair that tends to show rather strong moves. Since its bullish run is excluded, it is worth expecting a deep downward movement to the 1.1500 mark.

On Tuesday, the data on inflation in the US triggered swings in the euro/dollar exchange rate. On Wednesday, the speeches of the heads of the Federal Reserve and the European Central Bank could make the market volatile. Christine Lagarde and Jerome Powell continue to maintain ultra-loose monetary policy. However, the United States has more room to maneuver in this direction. Their unexpected statements may affect the situation in the market, primarily the dynamics of the EUR/USD pair.