On Friday, EUR ended a successful week with another small strengthening against the US dollar to the level of 1.1980. Euro currency started the second quarter more confidently, with the pair rising back to the level of 1.2000 after a reversal from the local low of 1.1700 at the end of last month. This is a significant achievement for Euro after heavy losses in the first quarter, when the currency fell by 4.1% against Dollar and by 5% against Pound. The latest reversal in the price movement was supported by a favorable change in the yield differences in the US and in the Euro area.
Market participants already expect the European Central Bank ECB to begin reducing its purchases of securities in the third quarter. However, it is unlikely that the ECB will give a clear signal at the next meeting on Thursday regarding the pace of purchases under the quantitative easing program after the second quarter. The ECB will look beyond a temporary increase in its core inflation measure, and will not accept any increase in bond yields unless it is the result of an improved economic growth outlook. The recent acceleration in the vaccination rate in the major Euro zone countries helped ease the pessimism about EUR, which intensified in the first quarter. The changes create a more favorable background for the Euro's performance in the short term. A break back above the 1.2000 resistance will strengthen the upward momentum.
Trading Signal for EUR/USD
In the trading forecast, Euro/Dollar is expected to rise to the resistance level of 1.2000, after which a reversal and a decline to the level of 1.1950 is expected.