EUR/USD Weekly Forecast: Uncertain Around 1.13, Fed, ECB to Guide
- The Fed and ECB are likely to take opposing positions at next week’s meeting.
- The market wants clarity about the Omicron variant and its potential impact on growth.
- The EUR/USD currency pair is currently near a year low and threatens to drop to 1.1200.
The EUR/USD weekly forecast is biased to the downside as risk sentiment remains poor amid the Omicron variant and traders await Fed and ECB.
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For the third straight week, the EUR/USD pair traded around 1.1300, as uncertainty over the Omicron coronavirus variant and looming central bank decisions made market participants wary.
In a later testified before Congress on the CARES bill, Powell said he expected to discuss accelerated emissions reductions at the December meeting, adding that funding might end “a few months early.” Markets now expect the Fed to double its contraction rate to $30 billion a month. The US policy will leave rates unchanged, but ending the support programs is the first step toward tightening, which increases the likelihood of a rate hike or two in 2022.
The European Central Bank has adopted a wait-and-see attitude: President Christine Lagarde stated that rates would likely rise in 2022 and urged the central bank not to raise rates prematurely.
On Thursday, traders were surprised by reports that the Governing Council was meeting in December to discuss a limited and temporary increase in the bond purchase program (APP). According to headlines, market negotiations indicate the central bank could extend reinvestment times or make reinvestment more geographically flexible as part of a contingency program.
Investor confidence in future growth could be increased or destroyed by events related to the Omicron brand. According to market sentiment, tougher measures could delay economic recovery. To understand how the new option can affect global growth, we must wait a few weeks. Omicron would be less dangerous if considered less dangerous, which would partially offset the effects of a funding reduction.
Key data/events for EUR/USD
Next week’s macroeconomic calendar will also include US retail sales for November, projected to increase 1% m/m, and Markit’s tentative PMIs for December. Moreover, Eurozone inflation and ECB and FOMC meetings are also key market movers next week.
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EUR/USD weekly technical forecast: Probability of upside correction
The EUR/USD pair is consolidating in a narrow range above the 1.1300 mark. The pair managed to close above the 20-day SMA this week. We expect an upside correction after falling more than 500 pips over the past three months. The upside hurdles lie around 1.1385 (local high) ahead of 1.1465 (50-day SMA). If the price does not surpass 1.1330, it is prone to fall back towards 1.1200.
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