- Amid a broad pick up in USD since the end of Wednesday’s US session, EUR/USD has fallen back below 1.1850.
- Weighed by pandemic concerns, the pair languishes close to lows of the day around 1.1830.
- The pair has broken to the downside of a recent upwards trend channel and it’s near-term bias looks more bearish.
EUR/USD trades just above daily lows of just below 1.1820 at close to 1.1830, with losses of slightly more than 20 pips on the day, or 0.2%.
Risk-off flows see USD picks up, EUR focused on EU politics
USD has seen a significant pick up since the end of Wednesday’s US session. The initial catalyst of the move higher in the DXY, and the move below 1.1850 in EUR/USD, was the news that New York would be closing schools after the regions Covid-19 test positivity rate surpassed 3%. This triggered a risk-off reaction at the time.
Though not particularly significant news in itself (children being back at home will of course be damaging to the region’s economy, but will hardly make a difference at a national level), it served as a reminder to markets of risks to the short-term economic outlook presented by the worsening state of the global pandemic. Further fueling USD upside during Thursday’s Asia session was news that Tokyo had raised its virus alert level to its highest as cases being recorded in the city hit record daily highs above 500 and as Australian State South Australia suddenly imposed a six-day circuit-breaker lockdown to curb a recently uncovered outbreak.
Prior to Thursday, USD had performed poorly in recent days, weighed by a combination of frothy risk appetite spurred by vaccine optimism, the increasingly dovish tone of Fedspeak and the continued afterglow of Joe Biden’s US Presidential election victory. Many an analyst had been arguing that typical safe-haven currency USD might be in for a near-term correction higher, amid a market underestimating pandemic/lockdown risks.
Turning to the EUR side of the EUR/USD equation; the single currency holding up better vs the resurgent buck than other, more risk-sensitive currencies (like AUD, NZD, NOK, SEK and GBP). But EUR/USD will have to contend with its own domestic risk factors today; EU27 Leaders will hold their second videoconference to discuss the EU’s response to the Covid-19 pandemic from 17:00GMT on Thursday.
In terms of the latest regarding the passage of the EU Recovery Fund and 2021-2027 Budget into EU law; Leaders in Poland and Hungary have indicated that they will exercise their right to veto at tonight’s videoconference, given their opposition to rule of law mechanism that has been attached to the aid package.
As things stand, though the EU could still approve the Recovery Fund and Budget with the existing rule of law attachment, the bloc requires the approval of all 27 member states to significantly increase their borrowing on capital markets. Essentially, as long as the Polish/Hungarian vetoes are in place, the EU will not be able to fund either spending programme.
Despite being set to be net recipients in the bloc’s Recovery Fund and Budget proposals (the ECB thinks fiscal aid from the EU will boost their GDP by 3%), neither nation has shown signs of backing down yet.
With the outcome of today’s videoconference expected to be a Hungarian and Polish veto stopping the EU’s spending proposals from progressing, focus now turns to the next European Council Summit meeting on 10 December, which has not become the defacto next deadline for an agreement to be thrashed out.
EUR/USD eyes move back to 21DMA following Tuesday, Wednesday double top
After setting a double top earlier in the week (on Tuesday and Wednesday, where gains petered out at roughly 1.1890), EUR/USD has broken to the downside of its recent short-term upwards trend channel and the bears continue to gain momentum.
Since dropping below 1.1850 late during Wednesday’s US session, EUR/USD has continued lower to test the 16 November low at 1.1814, which has held up for now. However, the short-term technical picture continues to look bearish for EUR/USD; as can be seen in the hourly chart below, the pair continues to trade within the bounds of a recent downwards trend channel. If lows of the day (and lows of 16 November) go, this opens up the door for a test of the pair’s 21-day moving average (DMA) at 1.1791, as well as a potential test of the 50DMA at 1.1775.
EUR/USD one hour chart
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