Euro / Dollar Week ahead forecast
The Euro to Dollar exchange rate has maintained its recovery from November’s lows below 1.12, which could keep the single currency under wraps as 2021 approaches.
Before the holiday break, Europe’s single currency recovered above the 1.13 handle against the US dollar before being confined to an unusually narrow range when the 1.1356 level – which coincides with the 23.8 percent Fibonacci retracement of September’s decline – proved impossible.
Near-term resistance remains at 1.1325/29, with 1.1356/60 ideally capping the short-term risk. A close above 1.1387, on the other hand, would see a small base complete, paving the way for a more profound recovery to 1.1433/40 and potentially what we would expect to be much stricter resistance at 1.1457/64.
Eurozone
Price action is not showing much directional bias in the short run. Still, the chart outlook is negative due to the EUR’s repeated failures to advance beyond the mid/upper 1.13s over the last month.
No central bank policy events or prominent economic figures are scheduled for the coming week, leaving only holiday market conditions’ typically lower trading volumes.
USD could benefit from negative Omicron news, though its positioning remains stretched and prone to further reduction into year-end. Market appetite for the greenback and changes in expectations for Federal Reserve interest rate policy will be necessary once again in January, as the divergence between the European Central Bank (ECB) and the Fed was a significant contributor to the Euro-7.14 Dollar’s percent 2021 decline.
The European Central Bank (ECB) announced this month that it will end its €1.85 trillion Pandemic Emergency Purchase Programme in March and gradually return to its pre-pandemic pace of purchases under its original Asset Purchase Programme 2022.
It will result in a significant reduction in Frankfurt’s footprint in the Eurozone government bond market. However, the Fed expected to go even further, and the Euro-Dollar has lacked directional bias since both banks’ December policy decisions.
