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U.S. government bond yields are at lower levels than the peak of growth seen last Thursday. Nevertheless, the US dollar continues to rise against a basket of six competitors, pushing the Euro currency lower.
Jerome Powell's speech yesterday did not contain anything new. He just reiterated that the country's economic recovery is far from complete despite the improvement in indicators. In any case, the Fed will continue to support the economy for as long as necessary.
The improving economic outlook in the US is very different compared to the Eurozone's gradual growth. European officials are facing a growing coronavirus infection and a slow vaccination campaign. The euro bloc countries have to constantly extend lockdowns, which worsens investors' expectations about the economic recovery in Europe.
It is becoming clear that Europe's interest rate will be raised faster than the United States. These long-term prospects are affecting the euro's position. In turn, the US dollar receives an additional impulse to further rise.
Yesterday, ECB officials stated that the current quarter will be difficult for Europe. Against the background of the current situation, the regulator had to stop the reduction in the volume of bond purchases and move to more drastic measures. This circumstance, together with an improvement in the US GDP forecast and the risk of an earlier Fed rate hike, will lead to a decline in the EUR/USD pair. What we are talking about here is a long-term decline and not temporarily.
Therefore, it is likely that there will be an increased pressure on the Euro currency in the coming sessions. This is despite the fact that it managed to recover some of its losses during the US trading session yesterday. Today, there is a pullback again. The potential targets of the Euro currency bears are set at 1.1890 and 1.1835.
We should also not exclude the bullish scenario. Here, we are watching the level of 1.1940. In case that this level is broken upwards, euro buyers can push the EUR/USD pair higher. If so, we will consider the potential upward targets of 1.1980 and 1.2030. The round level of 1.20 remains critical for the euro.
Today, traders' attention will be focused on the speech of the Fed Chairman, Jerome Powell, in front of the financial services committee. The content of such speech is already known to traders, but unexpected statements can clearly affect the course of trading during the American trading session.
Nonetheless, Powell is unlikely to change his position. He was very clear about the discount rate and bond yields. What's more important is this week's US bond auctions. The markets are also interested in the upcoming speech of the Fed's Vice-Chairman, Richard Clarida, on Thursday. It is possible that he will talk about the long-term dynamics of the treasury market and the prospects for buying up Central Bank assets in the second half of the year. Hints can only be expected here, as the official might not give a clear statement.
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