During today's Asian session, the US dollar index reached 4-month highs at 92.425. Various rumors associated with the development of a new 3-trillion fiscal stimulus package, optimistic speeches by the Fed Chairman and the Treasury Secretary, as well as the rapid pace of vaccinations favored the US currency in the financial market. Its positions noticeably strengthened against the basket of major currencies, returning almost all of its previously lost positions. As an example, the EUR/USD pair updated this year's price low, dropping to the level of 1.1834. Relative to this, it should be noted that the downward impulse in this price area has disappeared. This fact should alarm those bullish traders in the short term. The pair last traded below the level of 1.1835 a few months ago, particularly last year autumn. Since then, buyers here have been on the defensive, indicating a support level.
Considering the medium-term prospects, the general fundamental background is in favor of the US currency. Yesterday's speeches by Jerome Powell and Janet Yellen in Congress supported the dollar, although the Fed's head denied rumors that the regulator may curtail stimulus programs earlier than expected. Powell stressed that the recovery process of the US economy is moving faster than previously expected, and it seems that it is gaining strength. However, he also warned that the US economy is only starting its recovery, and is still far from complete. Therefore, the Fed will continue to support the economy for as long as it takes and if necessary, they will use a wide range of tools to support the economy. Mr. Powell also noted that he expects a sharp increase in inflation indicators this year, although he believes that it will quickly retreat from its maximum values. This means that inflation growth will not serve as a signal to tighten monetary policy, since, firstly, the regulator is ready in advance to tolerate inflation above the target 2% level, and secondly, the sharp growth of indicators will be short-term.
Most importantly, the FRS Chairman did not say anything new to the Congress. He only reiterated the things that were mentioned earlier during a press conference after the March meeting. But for the congressmen, the tone of his speech was more optimistic. However, the US dollar was mainly supported by Janet Yellen, who is now the US Treasury Secretary. During her speech, she promised to present a new economic support plan soon, which will follow a large-scale aid package of $ 1.9 trillion.
Although Ms. Yellen did not go into details, she noted that the change in tax policy will pay for the infrastructure investment program. Such rhetoric is consistent with the unofficial information that was published in The Washington Post earlier this week. According to insiders of journalists, the new ambitious project of the White House provides for budget expenditures of three trillion dollars. In particular, these funds are planned to be used to create jobs, modernize infrastructure, develop industry and free education in municipal colleges. This plan also provides for tax increases, which Yellen indirectly confirmed: the Biden administration plans to raise the corporate tax, cancel some tax breaks and increase income tax for wealthy citizens.
To simply put it, Janet Yellen confirmed the rumors that the Biden administration does not intend to settle for a 1.9 trillion aid package, and is indeed planning to launch a more ambitious economic development plan. Such conclusions overshadowed Jerome Powell's "dovish" rhetoric, although his speech was also optimistic. In fact, this was the first joint speech by Yellen and Powell in Congress. They voiced similar positions on the country's economic recovery, thereby showing the coordinated work of the Fed and the White House. It can be recalled that during the last months of Donald Trump's rule, Powell refused when US Treasury Secretary Steven Mnuchin demanded the Fed to return the unspent $ 455 billion from the coronavirus fund. Public conflicts between such structures are quite rare in the United States, so this incident then put pressure on the US dollar.
According to the above-mentioned, the current fundamental background contributes to a further decline in the EUR/USD pair. The bears managed to break through the support level of 1.1840, which was this year's price low until recently. Now, the main price barrier is set at 1.1790 (lower line of the Bollinger Bands indicator on the daily time frame). The pair is located below all the Ichimoku indicator lines (including the Kumo cloud), as well as between the Bollinger middle and lower lines. Everything is inclined to the downward trend.
The material has been provided by InstaForex Company - www.instaforex.com