12.04.202108:22 Forex Analysis & Reviews: EUR/USD. Powell's weak optimism and expectations for US inflation

The EUR/USD pair began the new trading week with a slight downward gap, thereby reflecting traders' doubts about the prospects to further develop the correctional growth. Last week, buyers of the EUR/USD pair attacked the area of the 1.18 mark several times, but they failed each time: as soon as the price breaks through the level of 1.1900, the upward impulse disappears, yielding to the dominance of sellers. On the other hand, the bears of the pair also did not achieve any success – the support level of 1.1850 (middle line of the Bollinger Bands, coinciding with the Kijun-sen line on the daily chart) served as a reliable rear. As a result, the pair traded in the range of 1.1850-1.1900 for almost the entire previous week (with an inertial excess of the upper limit of the range by 20-25 points). On Friday, the trading week ended at the symbolic level of 1.1899, that is, on the border of the two figures.

In fact, the situation remains the same at the start of this week: both buyers and sellers showed their indecision, which is expressed in a flat in a narrow price range. During today's Asian session, the US dollar was slightly supported by Fed's head Jerome Powell, who gave an interview to CBS. During a conversation with reporters, he said that the US economy is recovering actively and is currently at a turning point. Mr. Powell predicted that the economy will grow even faster in the second half of the year, especially in the labor market. Thus, Fed experts expect employment growth in the country in the region of 6-7% (highest rate in 30 years) and a decline in unemployment to 4-5%, from the current 6% mark.

Despite the Fed's optimism, the EUR/USD pair hardly reacted, falling to the level of 1.1885. Nevertheless, traders' negligence is quite justified, since Powell only assured the recovery of the US economy, without hinting at a possible curtailment of QE or an increase in the interest rate. Whereas earlier, he has repeatedly stated that the regulator will maintain the parameters of the current monetary policy even with a spasmodic growth of the economy in general and inflation in particular.

And yet, if the key US macroeconomic indicators continue to show significant growth, dollar bulls will not be able to ignore this fact. The economic calendar of the current trading week suggests increased volatility for the EUR/USD pair, although it is difficult to predict the direction of price fluctuations – much will depend, first, on macroeconomic releases, and secondly, on the success of political negotiations on the fate of Biden's economic plan for infrastructure development.

The continuous volatility may begin as early as Tuesday. Perhaps, the release of US inflation data will be the key event in terms of the publication of macroeconomic reports. On April 13, the value of the consumer price index will be known, from which positive dynamics are expected. The overall index on a monthly basis has been gradually rising for two months, reaching the level of 0.4%. In March, the minimum increase is also expected – up to 0.5%. But in annual terms, the indicator may show a more significant leap, rising from 1.7% to 2.4%. If we talk about the core index (excluding food and energy prices), then the indicator should also come out in the "green zone" (+0.2% m/m +1.5% y/y).

For dollar bulls, it is important that the above components of the release come out at least at the forecast level. Such dynamics will indicate good trends in the context of increasing price pressure. If the indicators are in the "red zone", then the US dollar will clearly be under pressure, as the market will discuss that the regulator will be forced to revise its policy due to excessive inflationary growth in the second half of this year.

During the European session on Tuesday, EUR/USD traders will focus their attention on the indices of sentiment in the business environment from the ZEW Institute. Positive dynamics are expected both in Germany and in the Eurozone as a whole. So, the German index reached 76.6 points (best result since September last year) last month. In April, experts are also optimistic, expecting the indicator will reach 79 points. In this case, the indicator will update the long-term record. The pan-European indicator rose to 74 points in March, so the April index should rise to 77 points. If the real figures coincide with the forecast values, the European currency will receive support.

However, there are certain doubts here, as they are now discussing the tightening of quarantine restrictions in Germany – in particular, Berlin intends to initiate a curfew in the evening and at night. In addition, weak vaccination rates and the prolongation of lockdowns in key European countries may reduce the optimism of entrepreneurs about the prospects for the recovery of the European economy.

In this case, we can expect the dollar bulls to strengthen their position in the next few days. If last week, the EUR/USD pair was trading at the upper border of the 1.1850-1.1900 range, then the price will decline to the lower border of this range in the near future. Sales can be considered both from the current positions, and at the next (possible) attack towards the 19th mark. The main target for the decline is the support level of 1.1850, which corresponds to the middle line of the Bollinger Bands that coincides with the Kijun-sen line on the daily chart.