17.02.202123:35 Forex Analysis & Reviews: EUR/USD. Dollar rushes into battle: pair approaches a powerful support level

The EUR/USD pair is heading towards the bottom of the 20th figure, against the background of the general strengthening of the greenback. Growth in 10-year Treasury yields, strong macroeconomic reports and a general strengthening of anti-risk sentiment amid the energy crisis in 14 American states - all these factors made it possible for dollar bulls to dominate in almost all pairs - including the euro. The EUR/USD bears broke the support level of 1.2060 (Tenkan-sen line on the daily chart) and opened their way to the next price barrier at 1.1980: at this price point, the lower line of the Bollinger Bands indicator on the daily chart coincides with the lower border of the Kumo cloud.

The European currency could not withstand the onslaught of dollar bulls, despite the fact that impressive indices from ZEW (both non-German and European) and relatively good data on the growth of the EU economy in the fourth quarter of 2020 (the second estimate turned out to be better than the initial one) were published.. The euro survived the moment of glory and even overcame the resistance level of 1.2150 - but by the end of Tuesday it had lost all the points it had won.

Here it is necessary to recall that the EUR/USD bears were already trying to fall below the 20th figure in early February (namely, on the 4th), against the background of another surge in anti-risk sentiment. At that time, the general nervousness was associated with an increase in anti-Chinese rhetoric on the part of the hawks of the White House. In addition, there was unconfirmed information in the press that Washington will increase sanctions pressure on Beijing – not to mention the preservation of those tariffs that were inherited from Trump. However, despite the growth of the US dollar index, the EUR/USD bears could not settle in the area of the 19th figure – the pair was only below the 1.2000 mark for a few hours. This suggests that at the moment, sellers are approaching a fairly powerful level of support, and weighty arguments of a fundamental nature are necessary in order to overcome it (and most importantly – to consolidate below). Information that provides momentum is needed, while at the moment the dollar is growing due to a combination of factors.

So, as already mentioned above, the US published a report on the volume of retail sales. This indicator remained in the negative area in December, reflecting the weak consumer activity of Americans. Taking into account car sales, and excluding this component, the indicator came out in the red zone, putting pressure on the greenback. According to preliminary forecasts, the January indicator should have shown a minimal, albeit growth: the overall indicator should increase to 1.1%, excluding car sales - to 0.9%.

However, the actual numbers exceeded the forecasts in many ways. The release component excluding auto sales jumped to 5.9% (the best result since January last year), and taking into account sales - to 5.3% (an 11-month high). In addition, the Producer Price Index (PPI) was published today, which is an early signal of changes in inflationary trends. It has shown good dynamics in recent months, but its growth was quite surprising -both in monthly and annual terms. Judge for yourself: instead of the predicted increase to 0.4% m/m and 0.9% y/y, the indicator jumped to 1.3% 1.7%, respectively. Excluding food and energy prices, this indicator showed similar dynamics (0.2% m/m and 1.3 y/y). Among other things, the figures of industrial production were also pleasing: the volume of industrial production increased in January by 0.9% (the preliminary forecast was +0.4%).

Against the background of such strong releases, there was talk that the Federal Reserve may begin to wind down its stimulus programs earlier than agreed. Fed members who recently commented on the current situation also added fuel to the fire. The head of the Federal Reserve Bank of Boston President Eric Rosengren, on the one hand, voiced concern about the weak Nonfarm and weak dynamics of inflation. But he expressed confidence that the US economy will show strong growth in the second half of the year: "stronger growth than previously expected." According to him, the key macroeconomic indicators in the next few months will receive significant support due to additional fiscal measures. A similar opinion was expressed by his colleague, the head of the Federal Reserve Bank of Richmond, Thomas Barkin. He also expressed optimism about the growth prospects of the US economy. According to him, American companies will be able to return to normal operation "approximately in the last third of this year."

And although such members of the Fed did not make any hints about an early curtailment of QE, their rhetoric was optimistic. This fact made it possible for the dollar to strengthen its position throughout the market, especially against the background of strong macroeconomic releases.

All this suggests that the dollar's upward trend has not yet exhausted itself - against the euro, the greenback is quite capable of reaching the base of the 20th figure or even testing the support level of 1.1980 (the lower line of the Bollinger Bands indicator on D1, coinciding with the lower border of the Kumo cloud). However, short positions will look extremely risky when you reach this price range. The last time the EUR/USD pair traded in the area of the 19th figure (and below) was in November 2020, and since then it only looked under the 1.2000 mark once. Therefore, as soon as the price overcomes this target, mass profit-taking is likely with the simultaneous opening of longs.