Because the ECB is deliberating on the possibility of increasing the APP at its meeting next week, the EUR/USD is continuing to fall towards 1.13000. USD recovers despite cautious sentiment. Investors are on edge as a result of Omicron and US-China tensions.
Perspectives On The Technical Front
EUR/USD CHART Source: Tradingview.com
Technically, the pair’s inability to benefit from the overnight rally and the resurgence of selling on Thursday should alarm optimistic traders.
Nonetheless, it is recommended to wait for some follow-through trading below 1.1300 before resuming the recent negative trend. The pair may then accelerate its decline towards interim support at 1.1260-55 before testing the weekly swing low at 1.1230-25.
The YTD low, or levels slightly below 1.1200, achieved on November 25, will be considered as a new signal for bearish traders if broken strongly. The next decline may pull the pair to the 1.1145 support region, en route to the 1.1100 round-figure level.
Alternatively, momentum over the mid-1.1300s may encounter resistance between 1.1380-85, the 38.2% Fibonacci level of the 1.1692-1.1186 decline. A prolonged break above 1.1400 might take the pair beyond the 50% Fibo barrier, around 1.1440.
The Underlying Outlook
Thursday’s dumping erased some of the previous day’s significant profits to a one-week high, near mid-1.1300s. The pair was hit by further US Dollar purchasing during the early European session.
Rising US Treasury bond rates and a cautious market sent some shelter flows back to the currency. The benchmark 10-year US federal bond rate rose back over 1.50 % in anticipation of a quicker Fed policy tightening.
Concerns about rising inflation have investors persuaded that the Fed will raise rates soon. The financial markets have been factoring in a launch in May 2022.
Thus, the newest US consumer inflation numbers expected on Friday will be closely watched. The CPI data will affect the Fed’s decision to accelerate tapering and lay the ground for an upcoming rate rise. This will support the Dollar ahead of the FOMC policy session next week.
Conversely, conflicting news on the Omicron strain of the coronavirus dampened recent market excitement. BioNTech and Pfizer announced on Wednesday that a three-shot treatment of their COVID-19 vaccine neutralized the Omicron strain in a lab test.
To combat the new COVID-19 variation, UK Prime Minister Boris Johnson issued additional COVID-19 limitations in England on Wednesday. This, along with growing international tensions, aided the Dollar’s relative safe-haven position.
The US just stated that it will not deploy an authorized team to the 2022 Winter Olympics in Beijing to oppose Chinese human rights abuses. Similarly, US-Russia ties deteriorated when US President Joe Biden threatened Russia with severe economic and other sanctions if it invaded Ukraine.
The fundamentals favor USD bulls and a significant decline. For short-term trading motivation, the USD price movements are relied upon in the absence of major economic releases.