Today we shall take a look at the EUR/USD currency pair. In the past three weeks or so, the exchange rate of this pair has climbed and fallen to the same levels three times in a row. It appears to be locked between 1.1342 and 1.1235.
Right now the euro is in a position that is somewhat difficult to evaluate. At its last monetary policy meeting for the year, the European Central Bank decided to officially put an end to its pandemic stimulus program in March 2022. While this is a hawkish signal, it is a cautious one. The ECB has other programs at its disposal to continue to support the economy if it deems it necessary. Plus, an end to bond buying does not signify that the ECB will start thinking about interest rate adjustments immediately, unlike the Federal Reserve. In fact, no hikes are expected in the eurozone for at least another year, maybe two. So, what appears to be a hawkish signal doesn’t actually amount to all that much. Furthermore, the spread of the coronavirus in Europe, particularly the highly contagious Omicron variant, likely means more lockdowns this winter. The Netherlands just announced a strict lockdown today. Germany might be the next economic powerhouse to follow with similar measures. This creates a less favorable situation for the euro.
As for the US dollar, investors are a bit more confident of the hawkish turn in the Federal Reserve’s monetary policy. At its meeting last week Chairman Jerome Powell announced that bond-buying will be phased out by March 2022, and that the Fed has a readiness for 2-3 interest rate hikes next year, with up to three more in 2023. This is a much clearer sign than what the ECB delivered about the direction in which the US economy is heading. However, Powell also downplayed some of the impact of these announcements by stating that rate hikes depend on the recovery in the US labor market. The latter has been consistently difficult for the United States, and the arrival of Omicron might make it even trickier. Thus, while the dollar’s long-term prospects are better than the euro’s, investors seem to have some doubts about its current strength.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1241, with the price currently trading above it. The daily support levels lie at 1.1238 and 1.1231. The daily resistances are located at 1.1251 and 1.1257, both of them overcome. The indicators of technical analysis agree in strongly recommending a sell position today.
