In principle, what is happening now for the euro/dollar pair fully fits into our vision of the state of things, which we share with our readers in each article. Once again, the fundamental background is now extensive, there are many factors that can influence the movement of the pair. But in fact, we are now seeing a banal technical correction in the long term. Recall that since March 2020, the US currency began to fall very much in price and this process ended only in December 2020. Thus, a decrease in the pair's quotes in the first three months by a total of 6 cents means simply a technical correction against the completed or paused upward trend. Thus, all the fundamental factors that can hypothetically influence the dollar or the euro may be just the background that market participants pay attention to last. And from our point of view, a very significant moment was on Friday, when the excellent report of Nonfarm Payrolls in the US did not follow any reaction from traders at all. This means that several other factors are still "ruling the ball" in the market. From our point of view, these are all the same factors of economic recovery and the imbalance between the US and EU money supply. In our recent fundamental articles, we concluded that these factors are now counteracting each other, as the economic recovery in America is very fast. So the question is, what will investors and traders pay more attention to? We believe that the dollar can strengthen its position against the euro for another month at most. The upward trend will continue further, especially if the US Congress approves another package of stimulus measures for the US economy. However, this package of incentives will stimulate for 8 years, so we are not talking about a quick infusion of trillions of dollars into the economy. Nevertheless, the US government and the Federal Reserve are pouring in enough without these two trillion dollars.
Thus, next week, we are inclined to the following scenario. If the price remains above the Fibonacci level of 1.1690-38.2% on the 24-hour timeframe, that is, there will be a rebound from this level, then the chances of ending the downward trend will increase significantly. If the bears manage to take the pair below this level, then the situation will be the opposite – the US dollar may continue to rise in price just during the month we talked about above. Now the extreme point of the pair's fall looks like the 50.0% Fibonacci level, which is equal to 1.1490. If the pair goes even lower, it will be quite difficult to talk about the resumption of the upward trend.
The most important fundamental factors that are now recommended to be aware of are the factor of coronavirus and vaccination in the European Union, the factor of the new stimulus package in the United States, the factor of blocking the recovery fund in the European Union by some states. Central banks are now in the shadows, as absolutely no one expects them to take any active action. In America, everyone is waiting for an increase in inflation, a recovery in the labor market, and these indicators are really recovering. But until they return to pre-crisis levels (or, in the case of inflation, 2% or higher), the Fed will not tighten monetary policy. Moreover, in the best case scenario, in the coming years, the Fed will reduce or completely curtail the quantitative stimulus program, which currently amounts to "at least $ 120 billion" per month. As for the European Central Bank, there is no talk of tightening at all. The European economy declined in the fourth quarter of 2020. And it will decline in the first quarter of 2021. Now, in the second quarter, it has run into a new wave of the coronavirus epidemic and failed vaccination. Thus, all the macroeconomic factors now speak in favor of the fact that the US dollar will continue to rise in price. However, this is opposed by the fact that the money supply in the United States is inflated, which cannot pass without a trace for the dollar exchange rate on the international currency market.
Next week, the European Union will not have any important macroeconomic reports. On Tuesday, the unemployment rate will be known, which in the EU remains quite high – 8.1%. However, the markets rarely react to this indicator. The same applies to the index of business activity in the service sector, which by the end of March is likely to be 48.8, that is, it will remain below the level of 50, which is the key for this indicator. Moreover, in April, the business activity index for the services sector may again begin to decline due to new quarantines in the EU countries. And that's all. Nothing more interesting is planned in the European Union. We can assume that traders will pay attention to the German statistics. In Germany, the index of business activity for the services sector will also be published, as well as the change in industrial production, however, we believe that there is very little chance of this. In the United States, the calendar for the next week is also almost empty, so in general, the whole next week will be quite boring in terms of "macroeconomics". On the other hand, fewer factors will influence the movement of the pair, which may help it to trade more calmly. But also less volatile at the same time.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart shows that the bulls at the end of last week took the first step towards a new upward trend. However, this is still only a crossing of the Kijun-sen line. Now they need to continue to build on their success. And only the saturation of the bears with the pair's sales and the factors of the growing imbalance between the US and EU money supply can help them in this. In general, the nearest target will be the Senkou Span B line (1.1825). And do not forget about the level of 1.1690, which the price can test. Then everything will depend on whether the rebound or overcoming will take place.
