Today we shall take a look at the EUR/USD currency pair. Over the past two weeks the exchange rate of this pair has been locked in a much narrower channel compared to how it moved prior to this period. The rate remains just below 1.13 at the moment, but the bearish pull is not as strong today as it was two weeks ago.
This week brings a lot of unknowns for the European single currency. The biggest reason for this development is the fact that many key central banks are holding their December monetary policy meetings this week. This includes the ECB. At the year’s end, the European Central Bank has some tough decisions to make. For a while now it has claimed that no hawkishness is needed, despite the highest-ever inflation in the eurozone, because the ECB sees the spike as transitory. It remains to be seen if that really is the case. At the same time, Europe is currently experiencing another serious coronavirus outbreak. The arrival of the highly contagious Omicron variant is only going to make that worse, with the results likely not showing until after the Christmas and New Year’s holidays, a time with a very high potential for superspreader events. With another winter of lockdowns and restrictions ahead, the European economy might actually need the ECB’s dovishness and continued fiscal support. Thus, the central bank has the difficult task of evaluating the risks of rising inflation vs. a continuing pandemic, as these two issues require opposite approaches.
Things are somewhat similar with the US dollar, for a change. The US economy, though considerably further ahead in its recovery compared to the eurozone, is also faced with the same dilemma. The inflation rate has grown to record highs over the past few months and the Federal Reserve has promised more timely hawkish measures in the beginning of 2022 to curb it. However, the appearance of Omicron may in itself have a negative impact on inflation, especially if more lockdowns are needed in the United States. Thus, this week’s Fed meeting will be the most highly anticipated event for investors. With both the Fed and ECB holding meetings, too many questions remain, so the pair will likely be unable to commit to a strong trend until those questions are answered.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1313, with the price currently trading below it. The daily support levels lie at 1.1303 and 1.1296, both of them overcome. The daily resistances are located at 1.1317 and 1.1323. The indicators of technical analysis are a bit mixed but lean towards recommending a sell position today.
