EUR/USD Forecast: Advancing on ECB’s tapering

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1354

The European Central Bank announced the end of PEPP by March 2022.
The latest wave of coronavirus in Europe put a halt to the economic recovery.
EUR/USD is bullish in the near term, although below a critical resistance level at 1.1380.

The US Federal Reserve inspired rally resulted in EUR/USD reaching 1.1318 early on Thursday, with the pair retreating back below the 1.1300 figure ahead of the European Central Bank decision. As widely anticipated, the central bank maintained its rates on hold and confirmed the Pandemic Emergency Purchase Program will end in March 2022. The Government Council also decided to expand its Assets Purchase Program to €40 billion per month in the second quarter and to €30 billion in the third quarter, to partially compensate the end of the monthly €60 billion bond-buying through PEPP.

Ahead of the ECB decision, the Bank of England hiked its main rate by 15 bps to 0.25%, helping EUR/USD to recover some ground ahead of the decision. Overheating inflation has finally twisted central bankers’ hands, as three major central banks, including the US Federal Reserve, have announced some form of tightening within the last 24 hours.

Earlier in the day, Markit published the preliminary estimates of the December PMIs for the Union. According to the official report, the latest wave of coronavirus has put a halt on Germany’s economic recovery, with the Services PMI falling to a 10-month low of 48.4 and the manufacturing index surging to a three months high of 53.2. The situation repeated through all the EU, with the services index contracting to 53.3 and the manufacturing PMI beating expectations with 58.

The US published November Building Permits and Housing Starts, up 3.6% and 11.8%, respectively. The country also released Initial Jobless Claims for the week ended December 10, which increased to 206K, missing the market’s expectations. Markit will later publish US PMIs, while the country will release December Industrial Production and Capacity Utilization.

EUR/USD short-term technical outlook

The EUR/USD pair trades near a daily high of 1.1359, maintaining a near term bullish stance, although still far from confirming substantial strength. The 4-hour chart shows that the pair is once again above its 20 and 100 SMAs, which anyway converge directionless in the 1.1280 price zone. The 200 SMA maintains its bearish stance, currently a few pips below 1.1380, the 38.2% retracement of the November slump.

At the same time, technical indicators head firmly higher within positive levels, reflecting persistent buying interest. Nevertheless, the pair needs to clear the mentioned Fibonacci resistance level to actually turn bullish and extend its gains towards the 1.1460/80 price zone.

Support levels: 1.1305 1.1260 1.1220

Resistance levels: 1.1380 1.1425 1.1470

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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