- The EUR / USD move to new yearly highs above the 1.2300 level during the session was brief.
- The ECB has presented a slight impediment to a stronger EUR / USD.
The pair EUR/USD it briefly rose to 1.2310 at the time of the US market opening, only to quickly retreat below 1.2300 following the speech by ECB member Oli Rehn. However, the pair has remained supported above 1.2280 and is currently consolidating just below. EUR / USD is mainly higher on Wednesday as a result of the softer US dollar conditions and despite being off the highs, it is currently still trading with gains of around 40 pips or more than 0.3%.
Contributing to the minor EUR / USD retracement from the highs above the 1.2300 level the ECB’s Governing Council, Oli Rehn; He reiterated the comment of other ECB members (such as President Christine Lagarde, Francois Villeroy de Galhau and Philip Lane). These comments are designed to reduce the rate at which the EUR is appreciating against its main counterparts, especially the USD, by hinting that if the appreciation continues, the ECB “will do something about it.”
The only problem is that unless the ECB is willing to ease monetary conditions beyond their current levels, perhaps by driving stocks higher and real interest rates lower through more rate cuts or a faster pace. Asset purchase, all these threats are obvious. Indeed, the ECB made it expressly clear in December that its objective at this point is no longer to ease monetary conditions, but simply to extend the time that conditions are at their current easy levels. Keeping monetary conditions at current (easier) levels for longer rather than easing current monetary conditions is unlikely to be enough to turn the tide against a further appreciation of the EUR / USD, most analysts would argue.
Soft USD conditions
Most institutions are calling for a weaker dollar in 2021 as global growth (in the second half of the year, anyway) begins to see significant improvement as major economies move closer to herd immunity against Covid-19. Although the short positioning of the USD, according to the most recent CFTC report, is close to its highest levels in 2020, traders still appear willing to anticipate some of this weakness in the US dollar heading into the new year.
US fiscal and political developments do not appear to be doing much favor for the US dollar either; It seems increasingly likely that 1) Congress will soon pass a $ 2,000 stimulus check for every American (up from $ 600 before) and 2) Democrats could win both Senate seats up for grabs in Georgia’s runoff election. (Which would give Democrats control over Congress and the US government would spend and borrow billions more in 2021).
Basically, it seems more and more likely that there will be more stimulus, which looks like a negative US dollar given 1) the stimulus will boost US and global growth, which is good for risk assets and bad for the US dollar. safe haven and 2) the stimulus is likely to encourage the printing of more money from the Fed to prevent real interest rates from rising.