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US data revealed last week indicated that the recovery of the US economy seems to be gaining momentum.
However, this upbeat report did not foster the rally of the US dollar. It declined by more than 0.7% in the last five days.
The fact is that strong US macro statistics spurred demand for riskier assets.
As a result, last week, the main US stock indexes reached record highs. USD dropped to its lowest levels since March 18.
The dovish comments of the Fed representatives, which provided support to the US debt and stock markets, only facilitated the further decrease of the greenback decline.
The 10-year Treasuries yield decreased to 1.5280% last week from a more than one-year high of 1.7760% recorded at the end of last month. The weakness of the US bond market takes the shine off the US dollar.
Federal Reserve officials acknowledge that the pace of the US economic recovery is impressive, but emphasize that this is not enough to start even discussing the cancelation of economic stimulus programs.
In particular, a member of the Board of Governors of the Federal Reserve, Christopher Waller, expects the US economy to recover but sees no reason to start tightening monetary policy.
The US is still struggling with a relatively high unemployment rate. This is why it is too early to wind down stimulus programs until the country kicks the economy into shape.
According to Federal Reserve Chairman Jerome Powell, the regulator may revise its policy if the indicators remain positive for several months. In addition, the national economy should achieve the central bank's target levels for employment and inflation.
When the US statistical data becomes strong and the Fed's rhetoric does not turn hawkish, we will see an increase in risk appetite, economists at Nomura pointed out.
As USD has been weekending for the week, it seems that investors have already priced in the upbeat results of the reports even before their publication. In addition, investors fear that the data may deteriorate in the coming months due to the reduction of the stimulus measures. The Fed may ignore these reports in the short term. The stimulus measures and the inflation growth at the expense of accumulated savings will weigh on USD (budget and foreign trade), analysts at Saxo Bank said.
If market sentiment remains bullish, the EUR/USD pair may break through the 1.2000 level and head to the current year's highs around 1.2350, they added.
The main currency pair climbed last week, approaching the important resistance level of 1.2000 and ending the week near the level of 1.1980.
On Monday, the US dollar index continued to dive, moving deeper into negative territory and testing the key support level of 91.00. It may drop to the psychological level of 90.00. There are no significant support levels until the February lows in the area of 89.65–89.70.
The EUR/USD pair hit the seven-week highs around 1.2040 amid the weakening of the US dollar across the board.
The euro may add gains as the pace of vaccination in the euro area is accelerating. So, by the end of April, about 20% of the German population should receive the first dose of the drug.
Italy is considering the possibility of easing quarantine restrictions as early as May. Although the eurozone will still lag behind the US in terms of the pace of recovery, the situation with the coronavirus has finally started to improve.
This week, there will be few important news releases and market-driving events. The economic calendar for the United States is almost empty.
Investors are awaiting data on business confidence indexes from the EU and the US for April, as well as US weekly jobless claims.
Investors are also looking forward to the next meeting of the ECB, which will be held on Thursday.
Market participants do not expect that the regulator will take any action but hope to receive signals regarding the future revision of monetary policy.
The ECB is likely to keep both the key rate and the volume of asset purchases unchanged. The tone of this meeting is likely to be similar to that of March. The regulator will maintain a wait- and-see approach and will assess changes in financial conditions against the backdrop of economic recovery, TD Securities experts believe.
Currently, the bullish bias prevails. As long as the EUR/USD pair consolidates above 1.2000, it may grow to 1.2130. If it breaks above this level, it may hit 1.2200. The support levels are located at 1,1990, 1,1945, and 1,1900.
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