29.03.202108:52 Forex Analysis & Reviews: EUR/USD: US dollar will recover its lost position this week

The US dollar index shows positive dynamics at the beginning of the pre-Easter trading week, reflecting the continuing demand. In view of an almost empty economic calendar, the dollar traded in a flat, with low volatility conditions. As an example, the EUR/USD pair fluctuated within a 20-point range, that is, within the range of 1.1775-1.1795 during Monday's Asian session. Last Friday, EUR/USD buyers decided on a relatively small correctional pullback, but the upward impulse faded at the end of the American session. Therefore, the US dollar slowly recovers its positions on the first day of the current trading week. The Euro currency, in turn, still has no counterarguments not only for a trend reversal, but also for the development of a massive upward correction. In any case, the US dollar may receive quite strong support from the White House in the near future, whose specialists are now developing a new economic plan. According to some estimates, its volume could be from 2 to 4 trillion dollars.

It should be recalled that the upward pullback of the EUR/USD pair at the end of last week was due to Joe Biden's cautiousness. At his press conference, the US President restrained himself to just a few phrases about new economic initiatives. In contrast to investors' expectations, the head of the White House did not announce tax reform (rumors about which are circulating in the American media) and did not go into details about the economic plan, which experts in the American press also gossip about. He only said that huge infrastructure development will create new jobs. The president's lack of words disappointed traders, which led to the disappearance of the downward impulse in the main currency pair. At the same time, the pair's bulls managed to develop a 50-point correction. The "Friday factor" also played a role, especially after a three-day price decline. Last week, the price fell from 1.1935 to an annual low of 1.1762.

However, judging by today's dynamics of EUR/USD, dollar bulls just took a break before a new offensive. It is worth noting that the downward momentum faded in the area of the support level of 1.1760 (lower line of the Ichimoku indicator on the weekly chart). Technically, a breakout of this target will lead the sellers of the pair to the level of 1.1600 (upper limit of the Kumo cloud on the same time frame). In such a scenario, the pair will occupy the 150-point price level of 1.1750-1.1600, while the level of 1.1760 (lower line of the Bollinger Bands on W1) will already serve as a resistance level. In other words, the task of the EUR/USD bears is to go below the above mark, while the task of the pair's bulls is to prevent the development of this scenario as much as possible. A trend reversal is unlikely at the moment: the high that EUR/USD bulls are capable of is to keep the price in the area of the borders of the 1.18 level, saving" the pair from stalling.

In my opinion, any more or less significant corrective pullback on the pair should be used to open short positions. The fact is that according to the influential New York Times, the White House plans to present an infrastructure development plan this week, which can be partially funded by raising taxes on corporations and on the income of wealthy citizens. NYT reporters said that this plan is part of a larger package that includes the allocation of hundreds of billions of dollars for educational infrastructure, the development of preschool education, increased spending on child care and additional assistance to those Americans affected by the COVID-19 pandemic.

New York Times sources reported that the US President's economic advisers will recommend dividing this initiative into separate legislative elements, since it is unlikely to pass a multi-trillion large-scale package through Congress all at once. However, such details will be uninteresting for the dollar bulls at this stage. The very fact of the presentation of the above-mentioned economic plan will allow the US dollar to show its character again, including in pair with the Euro currency.

On another note, Nonfarm data will be published this week. The key data on US labor market growth will be released this Friday, when the Catholic celebrates Good Friday. It should be noted that the main components of March Nonfarms entered the "green" zone: the number of employees in the non-agricultural sector increased by 379,000, with a forecast of 117,000. In the private sector of the economy, it rose by 420 thousand against the forecasted 210,000. In turn, the unemployment rate declined to 6.2%, although experts expected its rate to rise to 6.5%. We expect April Nonfarms to show similar dynamics. According to preliminary forecasts, the unemployment rate should decline to 6.0%, while the number of people employed in the non-agricultural sector should rise by 630 thousand.

Technically, the EUR/USD pair continues its downward trend – both from the technical and fundamental point of view. It is suggested to open short positions when breaking through the level of 1.1760 (lower line of the Bollinger Bands on the weekly chart). The nearest downward target is set at 1.1740 (lower line of the Bollinger Bands indicator on the daily chart). The main target in the medium term is the psychologically important target level of 1.1700.