EUR/USD Weekly Projected: The Fed And The ECB Are Bracing For Market Turmoil

The EUR/USD remains unchanged for a third week, moving around 1.1300 as market players remain cautious due to the Omicron coronavirus strain and upcoming central bank announcements.

Central Bank Responses

Speculation interest has priced in the US Federal Reserve tripling its bond-buying program. The Fed judged in November that the market was robust enough to reduce financial support, despite increasing inflation.

The Fed said it will slow the pace by $15 billion a month, $10 billion in Treasury bonds, and $5 billion in MBS.

Powell then spoke before Congress on the CARES act, saying they might end financial support “just a few months earlier” if they discussed it in December.

This means the Fed will now taper at $30 billion per month. However, removing aid programs is the first move towards tightening, increasing the likelihood of one or two rate rises in 2022.

ECB President Christine Lagarde stated that a rate rise in 2022 is improbable and that the monetary authorities should not tighten too soon.

The market was shocked on Thursday by rumors that the ECB’s governing council members would consider a slight increase in the Asset Purchase Program (APP) in December.

The market discussion suggests the central bank may provide geographical latitude to the investment returns or prolong the reinvestment duration under the emergency program, according to headlines.

Notably, both the EU and the US have had multi-decade high inflation rates. On Friday, Germany reaffirmed 6% annual inflation in November, while the US Consumer Price Index was revised up to 6.8% from 6.2%.

The market has seen central bank imbalances before, but the fact that the ECB and the Fed may move in opposing ways will certainly create a lot of noise, with the Dollar benefiting.

Omicron And Development

Little is known about the Omicron coronavirus subtype. The new strain is more infectious than previous strains, and early research suggests it may be less lethal. 

For those who do not have a “green pass” to enter particular areas or who do not have the vaccinations, the European countries have announced certain stringent restrictions.

Investors’ faith in future growth may hinge on the Omicron strain’s progress. Doubts about harsher measures delaying the economic recovery have soured the market.

It will take a few weeks to fully grasp the new variation and its implications for global growth. Omicron’s lowered lethality may somewhat offset the loss of financial assistance.

Next week’s macroeconomic schedule includes November US Retail Sales, expected to rise 1% MoM, and December preliminary Markit PMIs.

EUR/USD Technical Forecast

EUR/USD CHART Source: Tradingview.com

A weekly low was made, but the EUR/USD pair was maintained above the annual low at 1.1185. Additional drops are anticipated given the current state of the world’s central banks.

The 1.1160 price zone is a likely negative objective as long as the pair stays below the 38.2% retrace of its November decline around 1.1380. This highlights the 1.1000 psychological barrier, which may be achieved by the year’s end.

The weekly chart shows EUR/USD far below all moving averages, with the 20 SMA below the 100 SMA indicating widespread selling interest. The Momentum indicator remains bearish, while the RSI indicator remains oversold.

The daily chart does not support a bearish extension, as stronger daily openings keep the Momentum signal above its midline. But if the pair can’t hold intraday gains, additional losses are likely.

To add to the bearish argument, the RSI signal has fallen to about 41, as the pair battles with a negative 20 SMA.

For bulls, the next key resistance level is 1.1470, a long-term stationary resistance region.