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EUR/USD has risen amid Fed and data-related dollar weakness. However, the euro also has its own reasons to fall and EUR/USD’s ascent to the highest since September may suffer a setback. Yohay Elam, an Analyst at FXStreet, gives three reasons for a downside correction. 

Key quotes

“It is now the European Central Bank’s turn to release its meeting minutes. An expansion of QE is expected, but the size is unclear. Moreover, the ECB may also opt for cutting rates, an option that has never been denied. While printing euros has helped the common currency in covid times, slashing borrowing costs has hurt it.

“Germany is set to impose new restrictions, contrary to the trend in France and Spain, which have bent the case curve. Chancellor Angela Merkel said that COVID-19 infections are still too high and that more action is needed to rein in the spread. Any slowdown in the ‘locomotive’ would also hamstring the euro’s gains.” 

“The Relative Strength Index on the 4-hour chart is nearing the 70 level – reflecting overbought conditions, from where it is technically prone to a downside correction. Moreover, upside momentum remains relatively weak. The fresh high of 1.1940 is the first resistance line. It is followed by 1.1965, which was a swing high in the summer. Support awaits at 1.1920, which was a peak in early November. It is followed by 1.1895, a double-top in the middle of the month.”

 

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