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  • The EUR/USD shows a slight retreat amid Covid spread in China.
  • The Eurozone’s higher CPI may ask for strong measures to cope with inflation.
  • Technically, the upside potential remains intact in a sluggish market.

The EUR/USD forecast has turned a little subdued as the pessimism stemming from China’s COVID spread deteriorates the sentiment.

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Following a rally to 1.0637 in Asian trade, EUR/USD felt the heat. As a result of negative Covid-19 reports for arrivals from China, the major pair eased slightly around 1.0620. Since China is the world’s largest trading partner, disruptions to supply chains are expected.

Following a four-day high near 104.56 in early trade, the US Dollar Index turned sideways between 104.26 and 104.40. On the other hand, S&P 500 futures were non-moving after the two-day sell-off, indicating market participants support the risk aversion theme. Ten-year Treasury yields have declined to almost 3.86% under pressure.

Due to the speed at which China’s economy is opening up, infections have soared, defeating the goal of easing supply chain disruptions. In January, all travelers from China will be required to test negative for COVID before flying into the United States.

According to reports from Italian authorities, 50% of Chinese flights reported positive test results in Milan, prompting Italy to test all flights arriving from China for COVID. The US Dollar Index will likely remain strong despite fresh concerns about the COVID situation in China.

A high consumer price index (CPI) will force the European Central Bank (ECB) policymakers to look for ways to calm inflation in the Eurozone during fiscal 2022. The Dutch governor, Klaas Knoth, warned this week at five monetary policy meetings that further tightening was necessary to prevent sustained inflation. He added, “the risk that we do too little is still a big risk.”

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EUR/USD price technical forecast: No clear bias

EUR/USD forecast

The 4-hour chart of the EUR/USD pair suggests no clear bias at the moment. The price is wobbling in a tight range around the key moving averages. However, the 100-period and 200-period SMAs are pointing higher. This shows the potential for a bull run, perhaps after the holidays. Immediate support for the pair emerges at the 1.0600 area.

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