- EUR / USD will close the week below 1.1300, a potentially bearish sign for next week.
- The pair was largely affected by concerns about the European lockdown and then aggressive comments from the Fed.
Things are not looking good for him EUR/USD, with the currency retreating below the important psychological level of 1.1300 as currency volumes decline and the weekend approaches. Technical indicators may well view the failure to close above 1.1300 as a bearish sign heading into the next week. Given that the EUR / USD broke below a long-term downtrend channel, it is not particularly surprising to have seen the pace of the selloff pick up in recent days. Bearish technicians will have their sights firmly set on a test of the next key support area around the 1.1150-1.1180 area.
Recapping the action of the day then: EUR / USD started the session above 1.1370, but when the news came on Friday morning that Austria was going to implement a total lockdown and that Germany will soon follow, the pair fell like a stone. Analysts unanimously agree that the widespread lockdowns in Europe in the coming months will deal a significant blow to eurozone growth (meaning negative revisions to forecasts), giving the ECB more reason to be moderate in the face of high inflation. . By late European morning, the pair had posted fresh 16-month lows at 1.12501. Then some profit-taking allowed it to rally to 1.1320 when the US session began, but aggressive language from key Fed members injecting higher real and short-term US bond yields gave a boost to the USD.
For reference, Governor Christopher Waller called for an accelerated phasing out, saying that rate increases could be appropriate as early as the second quarter of 2022. This followed a similar message from St. Louis Fed Chairman James Bullard, who earlier in the week urged the Fed to double the pace of its gradual reduction of the amount to $ 30 billion a month in January. Shortly after Waller finished speaking, it was the turn of the influential FOMC Vice President Richard Clarida. He didn’t talk much about policy, but said it might be appropriate to discuss an accelerated reduction in QE in December. Many more FOMC members will be connecting next week. Market participants will be eager to assess the Committee’s appetite for accelerated QE reduction and earlier rate hikes.
Looking back at the week as a whole, it has been ugly. At current levels, the pair will close with weekly losses of around 1.4%, its worst performance since mid-June. Strong US retail sales, the New York and Philadelphia Fed survey, data on weekly job applications and building permits, as well as Friday, helped keep the dollar going. Meanwhile, the decidedly subdued tone of the main members of the ECB and the escalation of the Covid-19 crisis in Europe hurt the single currency.