On Wednesday market sentiment improved, but analysts are cautioning against further gains. It would now be wise to focus not on Omicron but on US interest rate policy, which is likely to change faster than anyone anticipates.
Jerome Powell no longer considers inflation to be temporary. He announced plans to accelerate the stimulus reduction program. This issue will be discussed at the Fed's December meeting.
JPMorgan called Powell's comments shocking.
On the one hand, this favors further dollar gains. Therefore, EUR/USD should go down. On the other hand, the European regulator has published up-to-date statistics on asset movements on its balance sheet. The rate for the week increased by €14.6 billion, whereas in the previous similar reporting period a rise of €27.9 billion was recorded. The rate of asset purchases has thus almost halved. This is a positive sign for the European currency.
There seems to be a strong long-term bearish trend going on, but at the same time, the euro is appreciating, demonstrating features of a safe haven currency. It is hard to tell whether its rise is sustainable. No one dares to say that the lows of the euro have been passed and an upwards reversal is about to begin. The EUR/USD can lose its defensive features at any time. As long as the quote remains below 1.1400, there is no chance of an uptrend.
In terms of technical analysis, EUR/USD remains in a long-term bear market zone. It is trading below key resistance levels of 1.1620, 1.1725, and 1.1885. The most likely scenario is that the key currency pair will continue to decline. This means that short positions from current levels and when approaching the important short-term resistance level of 1.1430 would be preferable.
Notably, the benchmark is still at 1.1300, which the Euro bulls are struggling to defend. Once it is broken down, followed by 1.1298 and 1.1285, that will be the final signal for the Euro to resume its downward momentum. If that happens, then the new fall may not be finished at 1.1100.
An upward correction towards 1.1490 is also quite possible, but selling is likely to start from this level. A final return to the bull market can only be expected after the key resistance levels of 1.1725 and 1.1780 are overcome.
Only speculative logic applies to the EUR/USD. On Tuesday, inflation data was released. It significantly exceeded forecasts. However, markets did not pay attention to the data.
High inflation should be positive for the euro as it could cause hawkish sentiment among ECB officials. However, Europe has a difficult epidemic situation and with the detection of the Omicron strain, it will get even worse. The imposition of quarantine is not ruled out. In such circumstances, the central bank will not want to tighten its policy. At least the ECB will be cautious.
According to Reuters, Fed officials are concerned about the region's unclear economic outlook. The PEPP program is scheduled to end in March, but no guarantees seem to be forthcoming. Some ECB members are voting not to make any decisions until February or to accept short-term commitments in December.
This news was also ignored by the market. This once again proves that investors do not pay attention to economic indicators. Therefore, it is best to keep an eye on the price now. If the euro breaks through and takes a hold above 1.1400, we might expect an upside correction before the end of the year. If the currency falls below 1.1300, it will hit a 16-month low.
As for the pair's rise, there is no way to support this opinion. So, the course is likely to go down.
With NFP data released on Friday, the pair is unlikely to show significant volatility until then. Meanwhile, any negative news on Omicron could have an impact on the euro.
