The most notable event in FX market on Monday was steep fall of the greenback. The currency index erased half a percent through rather sharp downward moves, which could indicate a large dump. The US currency has been taken away one of the key footholds – ssell-off in long-dated US Treasuries. Massive sales observed in February and March has been fueling demand for cash, however, this driver has suddenly lost steam last week - strong pro-inflationary data in the US (CPI, retail sales) for March met relatively tepid reaction of the bond market. Apparently, this forced dollar holders to ditch the currency.
Analyzing the possibility that the dollar will continue to fall, it is worth paying attention to the technical situation in the pair with the main rival - the euro. Earlier, we discussed a scenario where price after breakout of the horizontal + sloping resistance level (1.1950-60) may set the stage for protracted euro rebound if it stays above the level for several days. Price action on Monday indicates realization of this setup:
The ECB decision this week may open up additional growth prospects for the European currency. If the Central Bank sees optimism in the data and speaks less about the need to maintain huge asset purchase stimulus, the euro will get a support factor in the form of the European Central Bank’s slightly less dovish stance. Chances abound due to unexpectedly strong European data for March.
The dollar's downward jerk also affected GBPUSD - the pair broke through from the bottom up the correctional channel, which has been going on since March, which opens the way to 1.40 after a technical pullback:
The movement could be catalyzed by employment and inflation data on Tuesday and Wednesday. Particular attention should be paid to the inflation report, as due to the rapid pace of vaccinations, the chances of seeing a consumer boost in March are high.
USDJPY did not stand aside either. However, it should be borne in mind that technically the yen was strengthening extremely quickly against the dollar (hourly RSI is below 20 ppoints), which increases the chances of a rebound. Potential entry area - intersection with the medium-term trend line (107.60-70):
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