- Concerns about the Omicron covid variant weigh on the market’s sentiment.
- German inflation peaked at 6% YoY in November, according to preliminary estimates.
- EUR/USD has lost bullish strength and may soon resume its decline.
The EUR/USD pair trades marginally lower on Monday around the 1.1280 price level after hitting an intraday high of 1.1313. The American dollar is slowly recovering some of the ground shed on Friday as the market’s mood improves. Asian stocks plummeted, although European indexes trade with modest gains, leading to an uptick in US futures. US Treasury yields are also recovering ground, with the yield on the 10-year note currently at 1.54%.
Concerns about a new coronavirus variant firstly detected in South Africa spurred risk aversion on Friday and triggered some measures such as borders closures. Still, the variant, named Omicron, has already been detected in different European countries. So far, the WHO has called it a variant of concern, although there’s not much information about it. Pfizer is developing a study to understand whether their vaccine works against this new strain, while Moderna announced a new shot to combat it could be developed by early 2022.
Meanwhile, European Central Bank (ECB) governing council member Pablo Hernandez de Cos said this Monday that European policymakers aim to avoid the premature tightening of the monetary policy, repeating that high inflation could be expected to be transitory, despite being stronger and more persistent than anticipated a few months ago.
On the data front, the EU published the November Economic Sentiment, which came as expected at 117.5, down from the previous 118.6. Germany published the preliminary estimate of its November Consumer Price Index, which came in higher than anticipated, up by 0.3% in the month and 6% YoY. The US will publish October Pending Home Sales and the November Dallas Fed Manufacturing Business Index after Wall Street’s close.
EUR/USD short-term technical outlook
The EUR/USD pair was unable to advance beyond the 23.6% retracement of its November decline at 1.1305, the immediate resistance level. According to the daily chart, the latest advance seems corrective, as technical indicators bounced from extreme readings, now resuming their declines and hinting at a bearish continuation. The 20 SMA maintains its firmly bearish slope above the 38.2% retracement of the same decline, reflecting sellers’ strength.
The 4-hour chart shows that the pair remains above a mildly bullish 20 SMA, while technical indicators retreat from oversold readings but remain within positive levels. The bearish case will be firmer on a break below 1.1245, the immediate support level.
Support levels: 1.1245 1.1200 1.1165
Resistance levels: 1.1305 1.1340 1.1395