07.04.202108:30 Forex Analysis & Reviews: EUR/USD. Fed's minutes expectations

During the Asian session on Wednesday, the US dollar index stopped declining and even showed attempts to recover. In turn, the EUR/USD pair stopped at the level of 1.1870, thus passing more than 160 points in the first week of April. On March 31, the EUR/USD bears updated the price low (1.1704) of the year, but did not attack the 1.16 mark. In view of the fading downward impulse, traders began to actively close short positions (especially on the last day of the month and quarter), fixing profits. After that, there was a "domino effect": following the closing of sell orders, many opened long positions, hoping to get an upward correction. This was successful. The buyers of the EUR/USD pair managed to show impressive corrective growth, consolidating in the middle of the 18th figure.

The fundamental background facilitated the development of such a scenario: Political tensions over a high-profile economic plan to develop infrastructure have reduced Treasury yields and put pressure on the US dollar. In addition, the national currency has become a victim of inflated expectations and the buy-by-rumor, sell-by-fact trading principle. As soon as Biden presented his massive project, the US currency halted to be in demand.

Now, the focus is on the future prospects of the dollar. Some experts believe that the EUR/USD pair has formed a price bottom, and so, we can talk about the first signs of a trend reversal. Currently, an extremely huge correction is observed, as the dollar let the euro rise by 160 points. However, the single currency has never had its own arguments for large-scale growth. Yesterday, ECB representative Pierre Wunsch slightly supported the EUR/USD bulls, voicing optimistic comments about the EU economic recovery. However, this is just the opinion of one of the members of the Governing Council of the European Central Bank. Wunsch's rhetoric played a role in strengthening the corrective growth, but no more. In order to implement a trend reversal, more impressive and large-scale fundamental factors are needed, which the euro does not have. Moreover, many circumstances are not in favor of the indicated currency.

Primarily, we are talking about strengthening quarantine restrictions. In particular, France has declared a nationwide lockdown since April 3, while Germany, Austria, the Czech Republic, Slovakia and the Netherlands have significantly tightened quarantine measures. Meanwhile, coronavirus vaccination is proceeding at an extremely slow pace. At the moment, only 17% of the population of the European Union received the first dose of the vaccine. At first, the EU was not in a rush to conclude contracts with the manufacturer of the vaccine AstraZeneca (which led to a delay in deliveries), then almost all the countries of the Alliance suspended vaccination with this drug due to side effects. In turn, the deals with Pfizer and Moderna were associated with a lack of production capacity and delays in deliveries. For comparison, 34% of the population in the United States has already received at least one dose of the COVID-19 vaccine. Last Friday, a record was set: 4 million Americans received a vaccine injection per day. In this context, Europe looks like an outsider.

In terms of the macroeconomic reports, the EU also has nothing to boast about. Let's consider the situation in the labor market. After a three-month decline (from September to December), the unemployment rate in the EU countries began to rise again. In particular, we published a disappointing February data yesterday: contrary to forecasts, the indicator remained at 8.3%, while experts predicted a decline to 8.1%. At the same time, local reports in the labor market were also not good – for example, the unemployment rate in Italy surged to multi-month highs, reaching 10.3%. Unlike these countries, the US labor market has been showing positive dynamics for three months: in March, unemployment declined to a 6% level, and the number of employees increased by 916 thousand. On Monday, the United States released its March index of business activity in the service sector from ISM. This indicator rose to a record high (63.7 points). For comparison: in February, the index came out at 55.3, while the March forecast was at 58.5 points.

However, EUR/USD traders ignored both the Nonfarm and the ISM index. The opposition of some Democratic senators, who said that they would not support Biden's economic plan, prevented dollar bulls from using fundamental trump cards. But as soon as the market is optimistic again about the prospects for the US economy, the US dollar will resume its growth, including in a pair with the euro, which is not able to be on its own.

Against this background, it can be recalled that the minutes of the Fed's March meeting will be published tonight. Following this meeting, the Fed revised its economic forecasts upward – the volume of US GDP is expected to increase by 6.5% this year, against the previous forecast of 4.2%. After the March meeting, the Fed Chairman, Jerome Powell, assured reporters that the regulator will ignore the short-term increase in inflation (even if the indicator exceeds the target level) and will not tighten monetary policy before the agreed deadline. But if the opposite signals are found in the Fed's minutes published today (first of all, regarding the possibility of curtailing the stimulus program), the US dollar will significantly strengthen its position, breaking the corrective growth of the EUR/USD pair.

From the technical point of view, buyers of the pair managed to break through the average line of the Bollinger Bands indicator on the daily chart (i.e., level of 1.1850). But it will be possible to talk about the first signs of a trend reversal only if the Tenkan-sen line at D1 (1.1910) is broken. In this case, the Ichimoku indicator will form a "golden cross" signal: this will allow the EUR/USD bulls to count on testing the upper line of the Bollinger Bands indicator, which corresponds to the level of 1.2010. If the upward impulse finally fades in the range of 1.1850-1.1910, the bears will quickly take control, resuming the downward trend. At the moment, it is better to take a wait-and-see position for this pair.