EUR/USD Forecast: Attack on 1.22? Another dose of good news needed after the FDA nod, ECB boost

EUR/USD has been rising after a favorable ECB decision and vaccine approval progress.
Worries about the virus, US stimulus, and Brexit are holding the pair back.
Friday's four-hour chart is painting a bullish picture.

Yohay Elam FXStreet

Euro/dollar's consolidation may be coming to an end – and 1.22 is in sight, yet there are still some clouds to clear. After two injections of hope, additional developments are awaited.

The euro received a boost from the European Central Bank on Thursday. The Frankfurt-based institution announced a €500 billion expansion of its Pandemic Emergency Purchase Program (PEPP) as expected, but surprised by extending the program through March 2022. Investors cheered the move, which lowers governments' borrowing costs. In parallel, the EU finalized the multi-year budget after a compromise with Poland and Hungary.

Christine Lagarde, President of the ECB, said that the bank is monitoring the exchange rate, but did not offer starker language meant to push the euro lower. Her lack of urgency on the topic also allowed the common currency to rise.

See ECB Analysis: Lagarde shows her love for markets and the euro, more EUR/USD gains likely

Another shot in the arm came from the US Food and Drugs Administration, which recommended approving the Pfizer/BioNTech coronavirus vaccine. The American regulator is considered the global "gold standard" and should accelerate injections worldwide.

On the other hand, immunization could not come sooner – COVID-19 is raging on both sides of the Atlantic. Germany is set to tighten restrictions ahead of Christmas as daily deaths and cases hit new highs. and France abandoned plans to lift the nationwide lockdown as infections stopped falling.

The US recorded another day of over 3,000 deaths and yet another record in hospitalizations, above 107,000. The virus is taking a growing toll on the economy – US jobless claims jumped to 853,000 from near 700,000 in the previous week.

Despite the dual developments, Senate Majority Leader Mitch McConnel remains reluctant to give his blessing to new stimulus worth around $900 billion. Proposals from a bipartisan group of senators and the Treasury seem stuck in the mud. The safe-haven US dollar may gain further ground if the progress made earlier this week fully stalls.

Another set of talks is also deep in a quagmire – the EU and the UK are preparing for a no-deal Brexit, and that is weighing on the euro. The bloc announced a contingency plan in case deliberations hit the Sunday deadline without a breakthrough. UK Prime Minister Boris Johnson said there is a "strong possibility" of leaving on "Australian terms" – a code for no accord.

Euro/dollar is set to move to the tune of talks in Brussels and Washington and also to watch US data. The University of Michigan's Consumer Sentiment Index is set to edge down from 76.9 to 76.5 points in December.

See: US Michigan Consumer Sentiment December Preview: For once consumer attitudes may not matter

Overall, while the FDA and the ECB are moving forward, there are still several clouds in play.

EUR/USD Technical Analysis

Euro/dollar recaptured the broken uptrend support line on Thursday and is benefiting from upside momentum on the four-hour chart. It is also trading above the 50, 100 and 200 Simple Moving Averages. Moreover, the Relative Strength Index is below 70, outside overbought conditions – contrary to the previous swing to the highs.

Resistance awaits at 1.2177, the 2020 peak, followed by 1.22 and 1.2250, lines that played a role back in 2018.

Below the 1.2150 battlelines, support awaits at 1.21, which was a cushion last week. It is followed by 1.2080, 1.2060, and 1.2040, which provided support during December.

More Where next for the Fed, fiscal stimulus and Trump

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD softens to near 0.7000 on hawkish Fed signals, RBA rate decision looms

The AUD/USD pair loses momentum to near 0.7010 during the early Asian session on Monday. The US Dollar strengthens against the Australian Dollar on rising US Treasury yields and growing bets on further Federal Reserve interest rate hikes. The Reserve Bank of Australia will be in the spotlight later on Tuesday.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold treads water below $4,300

Gold grabs some buying attention and advances marginally at the end of the week, partially retracing the weekly decline, although it is still navigating below the key $4,300 mark per troy ounce. The fresh selling bias on the Greenback and the modest decline in US Treasury yields appear to support the humble advance in the precious metal.

Week ahead: Rate hike bets face a crucial data week

Despite the solid drop from the mid-September high, oil prices remained in the driver’s seat for another week, setting the tone in financial markets. Six months have passed since the late-February start of the US-Iran conflict, and there is still no breakthrough in the stalled talks, despite pressure from regional leaders and the rest of the world.

After the Trump Xi summit, markets are trading three clocks

The summit delivered time, not a deal. Trade, oil and chips now each run to a date, and the macro backdrop matters more than the pageantry. Markets wanted a deal and got a calendar date instead. Xi Jinping left Washington on Friday after tea at the White House and a tour of the National Archives.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.