Today we shall take a look at the EUR/USD currency pair. After two weeks of steady decline, a few days ago the trend of this pair shifted upward. Today we find the exchange rate back above 1.13, or the highest level in the past ten days.
Although we saw a brief recovery in the euro at the end of last week, we still expect that the European single currency will retain its bearish bias in the long term. As we have pointed out before, the European Central Bank is one of the most dovish regulators among developed economies. There is no chance that the ECB will tighten its monetary policy soon, which is weakening the euro. In addition, the euro can also lose positions due to the risk-off sentiment in the market caused by the appearance of a new Covid-19 variant (Omicron). Plus, the European Union will likely be heavily affected by Omicron, considering that countries like Germany and the Netherlands were already seeing a spike in coronavirus infections even before the new variant was identified. At least seven EU countries have confirmed the presence of the virus on their territories. More lockdowns seem likely for Christmas, which is going to further harm the European economy and the euro.
As for the US dollar, it is still considered a safe haven asset, so the panic surrounding the new coronavirus variant can actually be helpful for the USD. Recall that the reserve currency was one of the best performers at the height of the pandemic when risk aversion dominated the markets. Moreover, last week we got the minutes from the November monetary policy meeting of the Federal Reserve, which revealed a sped-up timeline for unwinding bond purchases in the context of high inflation. Investors are more confident of two rate hikes next year too, which overall makes the dollar a very strong currency in the long term.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1296, with the price currently trading slightly below it. The daily support levels lie at 1.1276 and 1.1260. The daily resistances are located at 1.1312 and 1.1332. The indicators of technical analysis strongly agree in recommending a sell position today.
