On Friday, the EUR/USD pair failed to hold onto its intraday gains and had a minor drop from the area of the mid-1.1300s, which corresponded to the weekly high.
The decline was not triggered by any evident fundamental factors and remained confined due to the tight liquidity circumstances after the year. Furthermore, the underlying positive attitude in the capital markets undercut the US Dollar’s comparative safe-haven position while providing some support to the major.
In light of new information indicating that the Omicron strain may be less severe than initially assumed, the general public’s perception of danger remains positive.
In addition, a number of studies have found that Omicron infections are less likely to result in hospitalization or severe illness, which has increased investor trust even more. In spite of this, anxiety over the economic impact of the rising number of coronavirus infections held the market’s upbeat attitude in check.
Fed’s Hawkish Stance
Aside from that, the Federal Reserve’s hawkish view has functioned as a tailwind for the Dollar and should limit the Greenback’s upward potential. Keep in mind that the so-called dot plot predicted that the Federal Reserve would raise interest rates at least three times next year, which was correct.
The Personal Consumption Expenditures (PCE) Price Index in the United States confirmed the projections, increasing by 5.7% year on year in November, marking the highest annual increase since 1982.
Despite this, the pair managed to register weekly gains and maintained its position above the 1.1300 level on the opening day of a new week.
The muddled fundamental backdrop, on the other hand, should deter traders from placing substantial directional wagers during the holiday-shortened trading week, according to the experts.
Due to the lack of any significant market-moving economic announcements, the pair is more likely to remain contained inside a limited trading range, as seen by the chart below.
Perspectives On The Technical Front
EUR/USD CHART Source: Tradingview.com
From a technical standpoint, the 1.1250–60 zone has been functioning as a significant stumbling block since the beginning of this month, and it should serve as a turning point for short-term traders going forward.
Unconvincing progress will pave the way for a continuation of the recent rebound from sub-1.1200 levels, which corresponds to the YTD low established in November. If it does, the pair might break beyond the 1.1400 level and head towards the next significant resistance area in the 1.1440-45 range.
The bullish momentum might be carried even further, allowing the pair to recover the psychologically important 1.1500 level.
On the other hand, the 1.1300 level, which is followed closely by the 1.1280-75 region, should continue to act as a protective stop before the 1.1240 support zone.
The occurrence of some follow-through trading will be viewed as a new trigger for bearish investors, exposing the 1.1200 level. Close to this is the 1.1185 zone (YTD low), beneath which the negative trajectory might be prolonged into the 1.1145 area, on its way to the 1.1100 round-figure level.