- EUR / USD has recovered from its DMA of 21 at 1.1300 for the second day in a row, but remains within recent ranges before the end of the year.
- For the year, the pair appears to be on track to post a 7.0% drop, largely due to policy divergence between the Fed and the ECB.
On the last trading day of the year, a day marked by low liquidity / volumes given the market closures in Europe and other parts of the world, the EUR/USD it has continued to find support at its 21-day moving average. The pair rebounded from a test of the 1.1300 level for the second session in a row and despite the recent closing of the few European markets that had been open on New Years Eve, it is recovering towards 1.1350. Short-term bulls won’t get too excited yet as the pair continues to trade within recent ranges and below the monthly highs of 1.1360-80 that have acted as a top for the past few weeks.
EUR / USD is likely to remain subdued within recent ranges for the remainder of what will be a very quiet session and appears to be on track to close the month slightly in the green. On the year, the pair appears to be on track to post a 7.0% drop. A breakneck US economic and labor market recovery fueled by a combination of massive fiscal and monetary stimulus has pushed inflation in the US to four-decade highs and prompted an aggressive turn by the Fed. The recovery of the eurozone has also been strong and inflationary pressures are also high, the aggressive pivot of the ECB has been much less aggressive (they will reduce the pace of QE purchases in 2022, but they have not yet set an end date). This has been a key factor weighing on the pair this year.
Looking at the EUR / USD from a technical perspective; Some technicians might argue that the pair formed an ascending triangle in December, with limited gains above 1.1300, while the pair posted increasingly higher lows throughout the month. That suggests that a bullish breakout could be in the offing, although this may affect fundamentals. Many currency strategists expect the dollar strength to persist into the first quarter of 2022 as the Fed reduces its QE buying to zero and perhaps even begins its rally cycle. The market reaction to what will in all likelihood be a very strong US job market and the data from the PMI ISM survey next week will be a good indicator of market appetite to continue chasing the dollar higher.
Technical levels
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