26.03.202113:30 Forex Analysis & Reviews: Dollar crushes its competitors

The strong growth of the US dollar on Forex is impressive. Just like in 2020, when the yuan enjoyed Chinese exclusivity, in 2021, the USD index is soaring due to American exclusivity, the growing attractiveness of US-issued assets, and the Fed's unwillingness to prevent a rally in Treasury yields. This is unlike the eurozone with its third wave of COVID-19, a double recession in the first quarter, and the ECB's intention to increase its asset purchases. In such conditions, the EUR/USD pair is simply obliged to decline. And it looks like this is not the limit.

At first glance, it may seem that many "bullish" drivers have already been taken into account in the quotes of the USD index, but in fact, no matter how events develop further in the United States, the purchase of the US currency will look appropriate. Markets will return to the topic of reflationary trading - buy the dollar. The Fed will scare investors by curtailing QE – buy the dollar. US stock indexes will develop a correction – buy the dollar. In such a situation, only the Fed's control of the yield curve can scare the "bears" on EUR/USD. No matter how the history of 2017-2018 repeats itself, when, after rising in the direction of $1.25, the single European currency significantly gave up.

EUR/USD, dynamics

If you want to do something well, do it yourself. The time has come for the euro, which has been riding on someone else's hump for a long time, to take the initiative in its own hands. Only the acceleration of vaccination in the EU can radically change the balance of power in the Forex market. According to ECB Vice President Luis de Guindos, if this happens, the eurozone will experience a real economic boom in the second half of this year.

In the short term, the euro can be supported by the release of data on German retail sales and European inflation. Who, if not Germany, can save the economy of the currency bloc? Bloomberg experts expect the best monthly growth in German retail trade since May, as well as an acceleration in consumer prices in the eurozone from 0.9% to 1.2% y/y. Given the fact that Markit estimates show commodity prices are rising fast in the eurozone, the ECB will soon face pressure from the "hawks" of the Governing Council, led by the head of the Bundesbank, Jens Weidmann.

Dynamics of prices for raw materials and supplies

And yet, in my opinion, positive statistics will not be enough to discourage the bears from selling EUR/USD. Rather, they use the growth of the pair's quotes to form short positions. According to Nordea Markets, the euro is heading towards $1.15.

Technically, on the EUR/USD daily chart, the Broadening Wedge pattern has clearly worked out, as a result of which the 161.8% target was reached on AB=CD. In this respect, trampling the pair near this level looks logical - some of the "bears" decided to fix their profits. In general, sellers dominate the market, however, the growth of the euro above $1.192 will activate the subsidiary model of the "Wolfe Waves" and "bearish" views will have to be revised.

In the meantime, it makes sense to keep the shorts formed below the 1.193 red line indicated in the previous material and build them up if the bulls are unable to catch hold of the levels 1.18 and 1.184.

EUR/USD, Daily chart