Last week brought a series of information that caused significant drops in the dollar – the decision of the Bank of Japan about the bond purchase quota, the rumor about China’s resignation from the purchase of US Treasury bonds, weak reading of producer prices and a soaring euro. Support is set at 1.20, resistance at 1.25.
Last week began optimistically for the dollar thanks to the strengthening of Treasury bonds and optimism regarding the three interest rate hikes planned by the Fed in 2018. The first drops took place after the Bank of Japan announced a reduction in the volume of purchases of Japanese and US bonds.
The dollar weakened further after Bloomberg published information that China, the largest holder of US Treasury bonds, would reduce or even completely withdraw from further purchases. A little later, the information was denied and described as “fake”, however, the markets have already reacted.
The US currency also weakened after the data from the Producer Price Index (PPI) was published, which showed the first drop in almost a year and a half. Meanwhile, the euro strengthened considerably after the publication of the minutes from the European Central Bank’s monetary policy meeting. The ECB is likely to further reduce the size of fiscal stimulus and focus more on interest rates.
Pic.1. EUR/USD chart.
The euro reached the highest level against the dollar for over three years. Today, the economic calendar is almost empty, and due to the scale of the strengthening of the European currency, we expect the pair to consolidate with a slightly bullish bias.