Daily Market Recap - EURUSD Euro at seven-week high against the dollar

The euro rose against the dollar Friday to its highest level in seven weeks as traders weighed Washington's plans for a capital gains tax, revealed in the press, ahead of a Fed monetary meeting next week.

At market close on Friday, the euro was up 0.69 percent against the dollar at $1.20968, the highest since March 3.

The White House is considering raising several taxes, including a tax on gains from financial transactions that would be almost doubled for the wealthiest people, in order to finance part of the infrastructure investments planned by Joe Biden, according to the American press. Capital gains could be taxed at a rate of 39.6% instead of the current 20% for Americans earning more than $1 million a year.

“Between what President Biden wants, and what he will get, there may be a world,” warned Jeffrey Halley, an analyst at Oanda, who points out that these unpopular tax hikes will be difficult to pass.

On the other hand, the euro benefited from the growth of the private sector in the eurozone: the composite PMI index of the firm Markit rose to 53.7 points in April, after 53.2 in March.

“The second quarter will be the European Union's, just as the first quarter was the United States,” said George Saravelos, an analyst at Deutsche Bank.

The EURUSD remains down 1.3 percent since the start of the year but is up 3 percent so far this month.

“There have been good economic data in several parts of the world and not really a catalyst,” said Brad Bechtel of Jefferies. With a U.S. central bank (Fed) meeting scheduled for Tuesday and Wednesday, “it's like waiting for the Fed to tell us when they're going to start reducing their asset purchases, which may not be right away,” he added.

Meanwhile, concerns about a tax on financial transactions particularly affected bitcoin: the cryptocurrency fell 5.9% to 48,570 dollars, the lowest since early March.

From a technical perspective, the EURUSD emphatically extended its uptrend from the start of April and looks set to test the next target at 1.21810 in the coming week. The 1.20 resistance turned support level should cap losses in the near term, with stronger support to be found somewhere between the 0.5 Fibonacci retracement level at 1.19460 and the 50-day MA.

(Chart Source: Tradingview 25.04.2021)

Traders may look to enter conservative short positions at this point as some degree of mean reversion could take the EURUSD back to 1.207 in the very near term. Though over the longer term the euro has the edge over the dollar barring any surprise in the Fed announcements early next week.

Support & resistance levels:

R3 1.23275

R2 1.22226

R1 1.21512

S1 1.20404

S2 1.19460

S3 1.19000

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.