untitled design

EUR / USD is recovering at 1.1350 on technical purchases

  • Technical buying hit the EUR / USD on Wednesday, sending it towards 1.1350
  • However, the EUR / USD has encountered stiff resistance in the form of a key long-term downtrend.

The EUR/USD was driven primarily by technical buying on Wednesday as the pair broke above a week-long downtrend to climb back above the 1.1300 level and broke its 21-day moving average at 1.1327 before stabilizing around 1.1350. At current levels, the pair is up an impressive 0.75% on the day.

Risk appetite was slightly weaker in the session, with US and European stocks falling amid mixed headlines about the efficacy of existing vaccines against the rapidly spreading new Covid-19 variant Omicron. This weighed slightly on the market prices of the short-term interest rate (STIR) in USD of the Fed rate hikes in 2022 (the implicit yield in the future of the Eurodollar three months of December 2022 fell around 2bp, but remained close to recent highs). This seems to be weighing on the dollar a bit, helping EUR / USD.

The EUR USD has now encountered resistance in the form of a descending trend line that had acted as support for the EUR / USD during the summer months and into October. The pair broke below this trend line in November and now appears to be acting as resistance at the 1.1350 area. A break above this trend line would likely cause the EUR / USD to extend its gains towards last week’s highs at the 1.13828 area.

High volatility is expected

Currency market volatility has risen in recent weeks amid increased uncertainty regarding Omicron. As more and more reports emerged about his apparent softness, this week’s rally in equity markets may have some thinking “the Omicron worries are over.” But it remains too early to say if this is the case. Even if the infection is mild, if enough people are infected at the same time, only a small percentage of hospitalizations would be enough to overwhelm healthcare systems in some countries. That means the risk of lockdown remains on the table, as seen on Wednesday with the UK.

That means forex market volatility may remain elevated for the next few days and the EUR / USD could continue to experience unusually high levels of turmoil, even if forex markets would normally be expected to be more in range prior to key data. US inflation rates The fact that the Fed, Bank of England and the ECB decide policy next week is another reason why currency market volatility is likely to remain high in the coming weeks. Deutsche Bank’s currency volatility index remains above 7.0, well above its 5.7-6.5 range during the second and third quarters of this year, although it has retreated somewhat from the recent highs of 7.40.

.

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights

 

Most popular