The euro-dollar pair continues its upward rally: today, the price broke through two resistance levels at once: this allows the bulls to count on final consolidation in the 11th figure area. In the morning, buyers broke the level of 1.1070 (the upper line of the Bollinger Bands indicator on the daily chart), and a little later, they easily broke through the level of 1.111 (the upper and lower borders of the Kumo cloud coincided on the same time frame at this price point), reaching the lower border of this clouds are already on the weekly chart.
If the EUR/USD bulls consolidate above the level of 1.1150, they can already count on testing the 12th figure - after all, the next, most strong resistance level in this case will be the price level of 1.1240 (the upper line of the Bollinger Bands indicator on the weekly chart). However, such heights now seem unattainable - but the 11th figure was also an unattainable goal for EUR/USD buyers not so long ago. Over the past three weeks, the pair has "stepped up" almost 400 points, and recently, growth rates have accelerated significantly, primarily due to the weakening dollar.
A new wave of sales of the American currency occurred after a statement by the head of the Federal Reserve Jerome Powell on Friday, and within the framework of which, he warned in almost direct text about the interest rate cut in the very near future. And although he literally voiced a more hidden phrase (that "the Central Bank will act appropriately to support the economy"), the market interpreted his words quite clearly. Many currency strategists of large banks (in particular, Danske Bank) have warned their customers that the US regulator can make an appropriate decision already at the March meeting, which will be held on the 18th. Moreover, according to some analysts, there are several scenarios of possible actions on the part of the Federal Reserve: the regulator can reduce the rate by 25 basis points in March and April, and if necessary, in the fall. According to another scenario, the Central Bank at the next meeting will cut the rate immediately by 50 basis points, after which it will take a wait and see position until the fall. The most optimistic scenario suggests one decline in March or April.
As you can see, the market has little doubt that the Fed will react to the current situation by easing monetary policy. The only question is how large the actions of the regulator will be.
At the same time, other fundamental factors put additional pressure on the dollar. The yield on 10-year Treasuries today declined to a historic low of 1.043%, while the stock market continues to lose ground. The news of a second death from a coronavirus in the United States (a man died in one of the nursing homes and a 50-year-old woman died on the eve) only aggravated the situation. In general, the number of confirmed cases of coronavirus in the United States has reached more than 60 people - four of them are in serious condition. A state of emergency was declared in the state of Washington: the governor instructed state bodies to use "all necessary resources" to prepare and respond to the outbreak of coronavirus, including the human resources of the National Guard. Donald Trump hastened to reassure Americans that the process of creating a vaccine against coronavirus is moving "quickly and very well". However, the director of the American National Institute of Allergy and Infectious Diseases disagreed with his optimism - he said that the corresponding vaccine would be ready for use no earlier than in a year and a half.
Thus, all factors such as Powell's resonant statement, a sharp decline in the yield on the Treasuries, the decline of the US stock market, the state of emergency in Washington and lastly, the first deaths from a new virus in the United States, hit the dollar in one powerful front.
Nevertheless, the European currency received unexpected support from the European Central Bank and macroeconomic statistics today. Thus, the Vice President of the ECB, Luis de Guindos, said that it is necessary to respond to the current situation not with the help of monetary policy, but with the help of financial. By the way, the head of the Central Bank, Christine Lagarde, has for several months been calling for tax incentives for Germany and the Netherlands, which could use their budget surpluses. So, Luis de Guindos has voiced similar argument, thus supporting the euro.
In addition, PMI production indices in European countries for February were published today. Many indicators have been revised upwards contrary to neutral forecasts. For example, the German indicator - from 47.8 to 48, the French - 49.7 to 49.9, the Italian - from 48.8 to 48.9 points. At the same time, the pan-European index has also been revised upward - from 49.1 to 49.2. And although the positive "shift" was mostly minimal, this factor also helped the euro strengthen its position.
In other words, the EUR/USD pair retains the potential for its further growth, and may even test the 12th figure in the foreseeable future. In my opinion, the upward dynamics of the pair will continue until the European Central Bank declares the need to lower the interest rate in response to the crisis. At the moment, surprisingly, the ECB takes a more restrained position on this issue compared to the Fed - for example, today's rhetoric of Guindos helped the European currency gain a foothold in the 11th figure. If the probability of a Fed rate cut in March grows (primarily due to "dovish" comments by representatives of the Federal Reserve), and the ECB remains at least silent about the prospects for its policy, the pair will easily breaks through price lines and test the main resistance level of 1.1240 (the upper line of the Bollinger Bands indicator on the weekly chart).
The material has been provided by InstaForex Company - www.instaforex.com