Market news

15 December 2021

EUR/USD forgoes Fed-led losses as bulls attack 1.1300 with eyes on ECB

  • EUR/USD grinds higher around short-term key hurdle after reversing Fed-inspired losses.
  • Fed announced faster tapering, hints three rate hikes in 2022 as expected.
  • Powell accepted Omicron fears, backing the ‘buy the rumor sell the fact’ market move.
  • ECB is likely signaling the end of PEPP but virus woes keep the case interesting.

Following a quick response to the hawkish Fed, EUR/USD bulls retake controls to poke the 1.1300 threshold during early Thursday morning in Asia.

The currency major pair dropped to 1.1221 after the US Federal Reserve (Fed) matched market forecasts for faster tapering and signaling rate hikes in 2022. However, comments from Fed Chair Jerome Powell seemed to have trigged the recent rally ahead of the key European Central Bank (ECB) monetary policy meeting.

Fed doubled monthly bond tapering to $30 billion and the dot-plot also mentioned three rate hikes in 2022, matching wide market expectations. However, Powell’s comments like “the Omicron variant poses risks to the outlook”, as well as refrain from rate hikes until the tapering is completed, recalled the EUR/USD pair buyers.

It’s worth noting that stimulus hopes from the US and a run-up in the equities, weighing down the US Treasury yields, also underpinned the currency pair’s advances.

In addition to the Fed-inspired move, the year-end consolidation and the pre-ECB preparations are likely extra arguments that support the latest EUR/USD run-up.

Moving on, the pair traders are likely to witness lackluster trading heading into the ECB meeting. However, preliminary readings of December month’s PMIs for Germany and the Eurozone may offer intermediate moves.

That said, the regional central bank is up for closing the Pandemic Emergency Purchase Program (PEPP) but questions over Asset Purchase Program (APP) and economic forecasts will be crucial for the pair traders to watch for fresh impulse.

“The ECB has made it clear that it is “very unlikely” that they would hike rates in 2022, insisting that higher inflation will likely be temporary. Nevertheless, market participants are expecting an upward revision to inflation projections, for this year and the next ones. Growth, on the other hand, can suffer a downward revision as the region is currently struggling with restrictions due to the rapid spread of Omicron. The scenario should be overall bearish for the shared currency,” said FXStreet’s Valeria Bednarik ahead of the meeting.

Read: European Central Bank Preview: More recalibration or actual tightening?

Technical analysis

Although an ascending support line from November 24 defends intraday bulls around 1.1260, EUR/USD needs to cross a seven-week-old descending resistance line, close to 1.1325 at the latest, to convince the buyers. Even so, the monthly horizontal resistance near 1.1380-85 and 100-DMA level surrounding 1.1445 will challenge the upside momentum.

Alternatively, a yearly low of 1.1186 offers an additional downside filter. Following that, the 61.8% Fibonacci Expansion (FE) level of October 28 to November moves, near 1.1120, will be in focus.

 

Market Focus

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