25.05.202109:05 Forex Analysis & Reviews: EUR/USD. Euro attempts to update this year's high again

The euro does not give up: after surviving the verbal attack of the ECB President, the euro paired with the dollar is trying to update this year's high (1.2245) again, after claiming the level of 1.23. And although the upward dynamics of EUR/USD is primarily due to the weakness of the US currency, the Euro also shows character, strengthening its positions in many cross-pairs (in particular, the EUR/JPY or EUR/CHF pairs). This combination allows buyers of the instrument to stay in the area of the 1.22 mark after a temporary decline to the lower border of the price range of 1.2150-1.2245. All this suggests that short positions on the pair are risky – bears fail to develop a downward trend even when the euro is under pressure from fundamental factors. The general skepticism about the prospects for the US currency is crucial. The downward trend of the dollar index keeps the EUR/USD pair above, regardless of whether the euro is growing or losing points all over the market.

However, the main currency pair continues to trade in the range of 1.2150-1.2245. It has been in this area for two weeks in a row, alternately breaking through its borders. Traders cannot break out of this vicious circle, as they have to react to the rapidly changing fundamental background. Overall, there are only two main topics on the agenda. These are the monetary prospects of the ECB and the Fed. If the Fed takes a fairly clear dovish position, then the ECB members will make EUR/USD traders nervous – both sellers and buyers.

The next ECB meeting will take place only three weeks later (June 10), but high-profile tensions over the prospects of monetary policy are already heating up. In fact, there is a split in the camp of the European regulator: ECB representatives of the "hawkish" wing focus on the recovery of the EU economy, the active pace of the campaign to vaccinate the EU population against coronavirus, improving the epidemiological situation and easing quarantine restrictions. In the context of these trends, some members of the regulator suggested that the ECB may soon decide to slow down the pace of bond purchases, contrary to the previously declared intentions to keep the PEPP program in its current form at least until March 2022. Luis de Guindos, Martins Kazaks, Klaas Knot voiced such rhetoric. In view of such statements, the EUR/USD pair updated the price high (1.2245) of the current year.

However, not all ECB representatives supported the hawkish intentions of their colleagues. In particular, Christine Lagarde calmed the enthusiasm of the EUR/USD bulls last Friday, after which the pair reversed again. The ECB President said that a soft monetary policy is still necessary "both at the moment and in the coming months", amid the general uncertainty. At the same time, she emphasized that the current inflation growth is a temporary phenomenon, so the European Central Bank should ignore such signals. Lagarde also added that the Eurozone will return to pre-crisis levels no earlier than next year. It is worth noting that other ECB representatives of the "dovish" wing (in particular, Francois Villeroy de Galhau and Isabel Schnabel) were quick to support the head of the Central Bank, saying that the assumptions about the early curtailment of QE are "speculative".

The continuing intrigue regarding the possible outcome of the ECB's June meeting, which, will take place in three weeks, keeps the euro's demand going. While the US dollar index is still in the area of the 89th figure, reflecting the general distrust of investors in the US currency. The "dovish" position of the Federal Reserve is more massive – almost all Fed representatives, who voiced their opinion over the past two weeks, said that the surge in American inflation is temporary and is due to last year's low base. At the same time, members of the Federal Reserve categorically denied rumors about an early curtailment of incentives.

All this suggests that the downward pullbacks on the EUR/USD pair can be considered as a reason to open long positions. Every positive release that will be published in Europe will strengthen the "hawkish" expectations about possible ECB steps. In turn, traders can simply ignore the growth of US indicators, given the Fed's position while the negative dynamics will put pressure on the US dollar. This combination indicates the priority of longs.

From the technical point of view, the EUR/USD pair on the D1, W1 and MN time frames is located between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, which formed a bullish signal "Parade of Line" on W1 and MN. The resistance level is 1.2245. This is the first upward target, which is relatively close. The main target is the 1.2305 level – upper line of the Bollinger Bands indicator on the weekly time frame.