Today we shall take a look at the EUR/USD currency pair. Since last week, rather uncharacteristically, we have observed that the pair formed a flat trend. The price has been stuck around 1.1860 for six days now, contrary to investors’ expectations.
In theory, the European single currency is in for some difficult times. Many EU member states have entered some sort of lockdown to contain the spread of the deadly coronavirus, which is without a doubt going to pressure the already damaged economy of the region. The World Health Organization pointed out that Covid-19 infection rates are slowly coming under control but that it would likely take until spring 2021 before the coronavirus stops being a threat. Today’s PMI data will be a testament to the scope of the damage the European Union has taken from the pandemic. Germany’s flash services PMI dropped to 46.2 in November and the eurozone-wide statistic is likely going to be disappointing as well. In addition, the prospects of an economic recovery in Europe are now worse also thanks to Hungary and Poland’s rejection of the European Commission’s stimulus bill. The European recovery fund contains a clause tying the use of the 750 billion euro worth of funding to an adherence to the rule of law, which the Polish and Hungarian governments detest. European leaders now have to either find a new agreement, or make Poland and Hungary comply since all 27 member states need to agree on the stimulus bill.
At the moment, the dollar is in a good position to strengthen due to economic sentiment souring in the United States. Based on the latest information from the Federal Reserve, there is little the central bank can do to alleviate the economic burden of the pandemic. They have ensured that banks are in a healthy enough condition to survive the crisis but can’t do much to encourage consumer spending. Fed Chair Jerome Powell has repeatedly appealed to the government to move ahead with its stimulus plans because those can help in ways where the Fed cannot. However, the Republican-dominated Senate has refused to accept the Democrat-championed fiscal stimulus bill. It seems that there won’t be more funds made available until the fight for the last remaining seats in the new Senate ends in January and Joe Biden steps into office. Thus, the US economy will likely take more hits in the two upcoming months which will boost risk aversion and thus strengthen the dollar.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1861, with the price currently trading above it. The daily support levels lie at 1.1855 and 1.1845. The daily resistances are located at 1.1871 and 1.1877. The indicators of technical analysis agree in strongly recommending a buy position today.
