It seems that the single European currency has been laying on the side of risky assets over recent months. All of these risky assets are currently standing against the U.S. Dollar, which has been acting like a safe haven asset so far this year. The dovish rhetoric of Federal Reserve’s (Fed) Chair Jerome Powell in the U.S. Congress seems to be pressuring the Greenback while supporting the Euro.
Mr. Powell streamed placidity despite shocking inflation figures in the United States that hit 5.4%. He reiterated that this spike in prices is transitory and is a consequence of the loose monetary policy. Such spikes, according to the Fed’s Chair, is inevitable, but still under control. Moreover, Mr. Powell assured his audience that this inflation spike will have no long-term negative consequences. He also said that the Consumer Price Index (CPI) would return to the Fed’s target of 2% shortly after normalisation of the monetary policy. But for the moment the Fed is convinced that monetary stimulus measures should be continued along with low interest rates and the massive bond purchase programme. “We think it’s important for monetary policy to remain accommodative, and supportive of economic activity, for now,” Mr. Powell said.
Market participant that waved concern over high inflation in the United States respire seemed to appreciate Powell’s words as he strongly supported risky assets. The U.S. Dollar index lost its upside steam and stepped back from 93 points to 92.3-92.5 points.
One of the beneficiaries of the weaker Dollar is the Euro. The EURUSD is holding above the support level at 1.1770, and it bounced back. This is not seen to be accidental. What is more important is that the pair did not go to the 1.1700 level. A dive below that level would mean a major reversal of the global upside trend for the Euro. The market is not ready for that while there are no major reasons for this reversal. And the Fed has again reconfirmed it. Considering this background a further strengthening of the single European currency may be considered, and 1.1700-1.1770 levels may serves as standing ground for the EURUSD. The first target that may be reached is 1.1880, which is the maximum before the last downside impulse. If this level is breached further upside movement to the 1.1940-1.1980 level may be seen. However, it is too early to say if these targets may be reached as the pandemic counter effort perspectives still look uncertain, along with the pace of global economic recovery.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
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