12.04.202210:58 Forex Analysis & Reviews: USD is walking boldly, despite the threat of de-dollarization, and for EUR, the main thing is to prevent capitulation

The US currency stubbornly defends its positions, trying to maintain global leadership in financial markets. The greenback operates with varying success, simultaneously "fighting off" the euro, which seeks to strengthen its influence in the global monetary system. This confrontation is rocking the EUR/USD pair, analysts say.

The dollar is like a tired lion that sits majestically on a mountain and looks at the struggle between the others taking place below. Periodically, one of the fighters tries to bite the leader, but it does not cause damage. By analogy with other currencies that "bite" the dollar, the latter defends its right to dominance and does not pay attention to these annoying troubles.

The greenback started the current week on a minor note, and the dollar index (USDX) opened with a bearish gap. However, Monday's negative background was replaced by the relative calm of Tuesday, thanks to which the greenback recovered.

On Tuesday, April 12, the dollar index managed to win back the previous losses and returned to the area above 100 ahead of the US inflation reports. According to preliminary calculations, prices in the United States have reached a 41-year high, having increased the most in the last 16 years. According to experts, in March, consumer prices in the United States soared by 8.5% after rising by 7.9% in February. In such a situation, the risks of aggressive tightening of the Federal Reserve's policy are increasing, preparing the ground for further strengthening of the greenback.

Against this background, the EUR/USD pair reached a low near 1.0800, but then abruptly changed direction. At the moment, politics has once again proved to be the key driver for the single currency. On Monday, April 11, the EUR/USD pair returned to 1.0925, adding 0.8% on reports about the leadership of the current head of state Emmanuel Macron in the French presidential election. The latter was ahead of the far-right candidate Marine Le Pen. It is expected that Macron will receive a majority of votes in the second round, scheduled for April 24. The EUR/USD pair was cruising near 1.0862 Tuesday morning, April 12, trying to climb higher.

The current situation has an ambiguous effect on the dynamics of the European currency. After the first round of the presidential elections in France, it could not grow. According to economists, this is facilitated by a large number of opponents of the European Union, which prevents the euro's further growth. According to experts, the coming to power of the far-right Marine Le Pen will "block the oxygen" of the European currency. The potential presidential candidate is not interested in further political integration of France in the European space and maintaining the current fiscal policy within the framework of the single currency area.

According to Scotiabank economists, the euro's growth potential looks limited against the background of continuing geopolitical risks and divergence of the ECB's monetary policy. At the same time, the reduction of political risks will attract euro bulls, and the peaceful resolution of the political conflict will radically change the attitude towards the single currency. The implementation of such a scenario will make long positions on the euro attractive in the long term.

The confrontation between the dollar and the euro is facilitated by the preservation of the hawkish attitude of the Fed. Adding fuel to the fire are problems in the energy market, the cost of which remains high. According to experts, the rise in the cost of fuel and energy will continue as long as anti-Russian sanctions are in effect.

Currently, the chances of a settlement of the Russian-Ukrainian conflict have increased, but this is unlikely to help the European Central Bank to stabilize the monetary policy. The central bank doubts the need to raise the rate twice (by 25 bp at each meeting). At the same time, the markets have put such a scenario in the prices, although its implementation is questionable. According to analysts, a one-time increase in the key rate is most likely. This will allow you to find a balance in the EUR/USD pair in the short and medium term.