ECB chief Christine Lagarde said the ECB’s forecast of 3.9% economic growth in the eurozone for 2021, after an estimated 7.3% contraction last year, is still “very plausible” despite the recent surge in coronavirus cases. However, the problems with the spread of the vaccine in Europe increase the pressure on the euro rate and may become a driver for a further decline in the EURUSD pair.
How is the current decline in the euro / dollar pair characterized now – short-term and moderate, or is it the beginning of a long-term decline? Alexander Kuptsikevich, an analyst at FxPro, answered a question from Fortrader magazine.
– Remaining above 1.2070, the EURUSD currency pair did not go beyond the correction model of the previous three-month growth. The 38.2% retracement from the October rally and the 50-day SMA are centered around this level.
At the beginning of the week, the bulls’ positions became less confident with the renewal of a pair of six-week lows at 1.2050. Fixation below this level will be a clear technical signal for the start of a deeper corrections…
Potentially EURUSD may move to a correction of the entire upside impulse of the pair from the 1.0750 area, where it received solid support from January to May 2020. (We do not take into account the short dip last March at the peak of the market panic).
Thus, the consolidation below 1.2070 in the next few hours promises to signal a deeper drawdown of the pair to the 1.1950-1.1970 area. This is a former significant resistance, so now it can become an equally important support.
On the side of the bears political aggravation in Italy, where the government has to survive an important vote in parliament; and a big vacuum cleaner of money markets in the form of the US Treasury.
The Americans will again have to borrow trillions of dollars in the market in the coming weeks, which is sucking liquidity from the market, as US Treasuries will get their interest no matter what. Last year, when placing treasury bonds for more than 2 trillion. The Fed has conducted the most aggressive buying in QE. Now purchases have stabilized, and without such an aggressive buyer, the market, in order to “buy something unnecessary, needs to sell something unnecessary”. This is a good chance for the dollar to halt its decline and regain some of the investor confidence.
Looking at the dollar in the longer term, one more unknown must be included in the equation: will the forthcoming stimulus really help the economy to accelerate faster than Europe or Asia, or will the stock market overheat?