The dollar is guilty. To execute it, can not be pardoned

The quotations of the EUR/USD are testing three-year peaks, but unlike last year, when the tone was set by the euro, in 2018 the successes of "bulls" in the main currency pair are due to the weakness of the US dollar. At first glance, it seems sales were surprising. The yield of 10-year US Treasuries is active at marking four-year highs. To doubt the strength of the US economy against the background of a large-scale fiscal stimulus is not necessary, and the acceleration of inflation increases the risks of aggressive tightening of the monetary policy by the Fed. What's the matter? Why did the "greenback" instead of confidently moving upwards, fell into the abyss?

At first glance, the version that the strength of the world economy allows us to hope for a normalization of monetary policy by central banks-peers of the Fed, looks beautiful. However, it was effective last year. At the moment, it becomes obvious that the dollar's troubles come from the dollar itself. Why does the growth in the rates of the US debt market and the increase in the probability of an increase in the federal funds rate lead to a fall in the USD index? What exactly could change the world outlook of investors by 180 degrees?

The dynamics of the likelihood of raising the Fed rate in March

Source: CME Group.

In my opinion, investors are laying quotes related to US currency pairs on the Forex factor of the completion of the economic cycle in the US. The market is changing on expectations. Furthermore, if in 2011-2016 the USD index grew due to the belief in tightening the monetary policy of the Fed, then in 2017-2018 there is a feedback. The more aggressive the Fed will hike rates, the sooner the US economy overheats. It is the factor of the future decline that does not allow the dollar to sleep calmly.

Simultaneously, the pressure on the position of the "bears" on the EUR/USD pair is exerted by growing deficits in the trade balance and the state budget of the United States. The first, not taking into account that oil reached a record level of $50 billion. Second, the influence of the tax reform will require large-scale issuance of debt obligations. It is not completely certain that money will go to the United States as actively as before. At the previous auction, the sale of 10-year bonds was at its lowest in the last 5 years. Non-residents want to see rates at 3.5% or higher, so the growth of yield on Treasury bonds does not support the US dollar.

It can not be said that the euro does not contribute to the development of an uptrend in the EUR/USD. For a long time it was believed that as the parliamentary elections in Italy approached, a single European currency would face the activity of sellers against the background of aggravation of political risks. In fact, everything is quiet in the eurozone. Moreover, an analyst of Bloomberg believes that a strong coalition will be formed in the country. Investors do not have much to fear over the ECB's dissatisfaction with the strong euro, because the trade-weighted exchange rate has not changed since August 2017.

Technically, the EUR/USD pair confidently moves in the direction of the target by 200% on the AB = CD pattern. While its quotes are above 1.2435, "bulls" are unlikely to weaken the grip.

EUR/USD, daily chart