06.05.202118:52 Forex Analysis & Reviews: EUR/USD. Dollar lost its trump cards, bulls won a situational victory

Bulls of the EUR/USD pair, following the results of the two-day confrontation, won the positional struggle and defended the 20th piece. Dollar bulls, in turn, have suffered a defeat throughout the market: the US dollar index is plunging, losing all the gained positions. Treasury yields are also declining, reflecting general investor pessimism about the Federal Reserve's monetary policy prospects.

By and large, such an inglorious result of the upward march of EUR/USD was quite predictable - especially after US Treasury Secretary Janet Yellen retracted her words about the need to raise the interest rate. Yesterday she clarified her position, announcing that she does not expect the Fed to tighten monetary policy and generally has no right to voice any recommendations to the Fed. After that, the upward momentum faded away, and traders froze at the bottom of the 20th figure, waiting for the next information drivers. And they were not long in coming - representatives of the Fed (Rosengren, Mester, Evans, Bostic) unanimously voiced a disappointing verdict for dollar bulls: "it's too early to talk about curtailing QE, and even more so - about raising the interest rate". This message, in one interpretation or another, was voiced by all of the above representatives of the American regulator. And there is no doubt that Fed Chairman Jerome Powell shares the position of his colleagues.

By speaking as a "united front", members of the Fed made it clear that any talk about a possible tightening of monetary policy parameters are speculative. The central bank has once again "nipped in the bud" hawkish sentiment among traders. All this led to the fact that US macroeconomic reports stopped working again - EUR/USD traders simply ignore them. For example, today the growth rate of initial applications for unemployment benefits came out in the green zone - at around 498,000. This is the best result since March 2020 (when the US economy had not yet fallen under the rink of the coronavirus crisis). Last week, this indicator came out at the level of 540,000, in the year before last it was at around 590,000. These dynamics are indicative of healthy trends in the US labor market. And the forecasts for tomorrow's Nonfarms are positive. In particular, the unemployment rate in April should fall to 5.8% (the best result since March 2020), and the number of employed should rise by 950,000 (the best result since April 2020). A sharp increase in the number of employed is expected in the private sector of the economy and in the manufacturing sector. Faster macroeconomic reports in the labor market suggest that the April Nonfarm may exceed analysts expectations.

But judging by today's "disregard", the reaction to tomorrow's release may be muted. It is also worth recalling yesterday's speech by the head of the Federal Reserve Bank of Cleveland Loretta Mester. In her opinion, strong employment should go exclusively in conjunction with strong inflation. In this context, she stressed that the central bank will not respond to strong performance in the labor market. Earlier, similar messages were voiced by the head of the Fed, and many of his colleagues. The general opinion is that the current growth of key macroeconomic indicators is temporary (and not sustainable), therefore, it is inappropriate to talk about tightening of monetary policy parameters. This position will put background pressure on the greenback, allowing EUR/USD bulls to capture new price heights.

Now the euro-dollar pair is testing the resistance level 1.2070 (Tenkan-sen line on the daily chart), overcoming which will open the way for EUR/USD bulls to the next resistance level of 1.2150 - this is the upper Bollinger Bands line on the daily chart. In addition, in this case, the Ichimoku indicator will form a bullish Parade of Lines signal, in which all the indicator lines will be below the price. On April 29, the pair had already tested the target of 1.2150, but met a rather strong resistance, which was caused by the strengthening of the US currency. Today, the fundamental picture contributes to the pair's succeeding growth, as the greenback is in a more wounded state. The Fed has once again denied the hawkish outlook, despite the growth of the main indicators of the economy; the discussion of the new infrastructure plan was delayed; the rate of vaccination in Europe is already comparable to the US rate (earlier this factor played in favor of the dollar). All this suggests that EUR/USD bulls may not only test the resistance level of 1.2150 in the medium term, but also overcome this target, "swinging" at the 22nd figure. However, you are advised to open long positions while aiming for 1.2100-1.2150 after the pair has settled above the resistance level of 1.2070 (Tenkan-sen line on D1).