The upcoming earnings season could be a way to ease tensions in the coming weeks, given that the economy remains in a strong position, despite the challenges of the omicron uncertainty.
The ECB is one of the central banks still exerting temporary inflationary pressure. This week’s focus will be on the ECB’s accounts from December, comments from policymakers including President Christine Lagarde on Monday, and the final inflation figures for December. Very high inflation is likely to change the perception of the central bank, if the pressure does not subside soon.
EURUSD strengthened 0.54% last week, but closed on Friday with a loss of -0.33%. EURUSD came under pressure on Friday from dollar strength, along with concerns that rising Covid infections in Europe will lead to pandemic curbs sapping economic growth, after Germany reported a record 92,223 infections on Friday. EURUSD settled lower amid dovish comments from ECB Executive Board member Schnabel who said a rate hike would not materialize quickly, as hasty hikes could cause the economic recovery to stall.
The European single currency posted a hat-trick of gains that lifted it to third place in the major currency performance table for 2022 last week. The rally occurred, as the US Dollar slipped as a whole due to profit taking. Consolidation in December 2021 formed the basic pattern of the ascending triangle. This pattern tends to be bullish in an uptrend, as the bottom of the triangle is ascending, representing an accumulation of higher lows. The market reaction to the US CPI data caused the Euro to strengthen and confirm the basic pattern and tactical gains.
Last week’s rally started the initial move for a short-term Euro recovery, which is likely to pick up further, if the pair stays above the 1.1385 support.
The US Dollar might pull back a bit in the short term. However, the difference between the Fed’s hawkish policy and the ECB’s dovish policy should still support the USD. Moreover, the Fed head once again emphasized in recent comments that the fight against inflation is a top priority for US regulators and expressed confidence that the US economy will cope with rising interest rates.
EURUSD,H4
EURUSD finally extended its rebound from 1.1185 last week and hit a high of 1.1482. The peak temporarily collided with the descending trendline, so the bias is neutral to start this week first. The rebound from 1.1185 is a corrective wave, therefore, if the rally continues the movement will be limited by the resistance at 1.1691. On the downside, a move below the 1.1385 support would lead to a retest of the 1.1354 low, and then, 1.1284 and 1.1185. However, a sustained break of 1.1691 would indicate, that the trend has reversed.
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Ady Phangestu
Market Analyst
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