- EUR/USD pares the biggest daily gains in a week, sidelined of late.
- US dollar licks its wounds even as yields dwindle post-Fed.
- Market sentiment remains unclear on mixed updates over Omicron, geopolitics.
- PMIs can offer intermediate moves but PEPP, APP and economic forecasts are crucial words to follow.
EUR/USD hovers around 1.280-85 after posting the biggest daily gains in a week despite the Fed’s hawkish halt. That said, the pair traders struggle to keep the previous day’s optimism ahead of the key European Central Bank (ECB) monetary policy meeting.
Risk appetite dwindles amid mixed updates concerning the South African covid variant, dubbed as the Omicron, as well as relating to China. While the virus cases are spreading outside the West of late, chatters surrounding the medicines and their effectiveness join cautious optimism to overcome the pandemic and favor the bulls.
On the contrary, escalating tussles between Beijing and Washington battles hopes of faster approval to the US Build Back Better (BBB) plan to confuse traders. The US push for the Uyghur Bill and Beijing’s rush to control data companies are the latest factors portraying the cold war.
To portray the mood, the US Treasury yields struggle to extend the previous two-day advances while the stock futures in the West print mild gains by the press time.
That said, the market’s surprise reaction to the US Federal Reserve’s hawkish halt could be linked to Fed Chair Jerome Powell’s comments like “the Omicron variant poses risks to the outlook”, as well as refrain from rate hikes until the tapering is completed.
Read: Fed Quick Analysis: Hawks shift to three hikes in 2022, King dollar to end 2021 on top
Looking forward, EUR/USD traders may take intermediate clues from the preliminary PMI data for the Eurozone, Germany and the US for December. However, major attention will be given to how the ECB will overcome the Pandemic Emergency Purchase Program (PEPP) and manage Asset Purchase Program (APP).
Ahead of the meeting, FXStreet’s Eren Sengezer said, “The European Central Bank (ECB) is widely expected to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, at the December policy meeting. More importantly, the ECB is set to take a step toward policy normalization and unveil its plan to retire the Pandemic Emergency Purchase Program (PEPP). Additionally, the bank will release the updated macro projections.”
Read: ECB December Preview: How will ECB replace PEPP?
Technical analysis
EUR/USD seesaws between a seven-week-old descending resistance line close to 1.1325 and an ascending support line from November 24 around 1.1260. Adding to the upside filters is the monthly horizontal resistance near 1.1380-85 and 100-DMA level surrounding 1.1445. On the contrary, a yearly low of 1.1186 offers an additional downside filter. Following that, the 61.8% Fibonacci Expansion (FE) level of October 28 to November moves, near 1.1120, may lure bears during post-ECB fall.