Today we shall take a look at the EUR/USD currency pair. December has proven to be a month in the euro’s favor so far, with the pair steadily trading around and above the 1.21 level. More growth might be in tow.
Last week’s events brought a lot of relief for the European single currency, not that its prospects were in too much danger to begin with. At a European Council summit the EU managed to convince rebels Poland and Hungary not to veto the Recovery Fund, the bloc’s pandemic-related stimulus package. The budget for the next few years was also agreed, so with that, the EU ensured it could continue with its economic recovery plan. In addition, the European Central Bank announced another 500 billion euro bump up in its asset purchasing program to support the economy. It did not change interest rates at its last policy meeting for 2020. Thus, investors now have stable conditions to evaluate the eurozone, and the region so far seems well-positioned to recover. The biggest question mark that remains is how soon the EU could approve anti-Covid drugs and start vaccinating its people. Germany just announced that it will extend its lockdown into the holiday season, something other EU countries have tried hard to avoid. The preliminary November lockdowns did not work as well in Germany as they did in other countries. There are fears that more lockdowns could stay in place in Q1 of 2021 since the effects of mass vaccination will not begin to show immediately, and no vaccines have been approved yet. The economy may still take some additional damage in the coming weeks or months, depending on how fast the EU moves with the vaccinations. Still, at the moment investors don’t seem too concerned about it and value the bloc’s recovery prospects as more important than any immediate danger, thus boosting the euro.
The US dollar has had a much more uncertain fate lately. Thanks to broad optimism about Covid-19 vaccines and a recovery in the global economy in 2021, investors are not as keen on buying safe havens like the dollar anymore. In addition, this week we need to pay attention to the Federal Reserve’s last monetary policy meeting, which will take place on Wednesday. Based on what Chairman Jerome Powell has been saying in the past few weeks, it is likely that the Fed will opt to increase its stimulus program, especially in the absence of fiscal stimulus by the government. A move like that will be beneficial to the stock market, but will pressure the dollar further.
In terms of the daily chart, today we have a pivot point for the pair located at 1.2137, with the price currently trading above it. The daily support levels lie at 1.2129 and 1.2125, both overcome. The daily resistances are located at 1.2141 and 1.2149 (both overcome). The indicators of technical analysis agree in strongly recommending a buy position today.
