EUR/USD: Three reasons to expect a recovery while above 1.2110

EUR/USD has been under pressure as markets sour on Biden’s suggestion of tax hikes. Nevertheless, there is some room for recovery, coming from dollar weakness rather than euro strength, as FXStreet’s Analyst Yohay Elam reports.

See – EUR/USD: Close below 1.2100 or above 1.2220 to clarify the next leg direction – OCBC

Key quotes

“The mood soured when Biden said that ‘everyone must pay their fair share,’ hinting at tax hikes. Another concern is that Democrats will have a hard time passing all the measures, given their razor-thin majorities in both chambers of Congress – but that is not a novelty. Overall, apart from the potential tax hikes – which may be shelved – there is little to scare investors. The market’s mood may improve once again.” 

“Federal Reserve Chair Jerome Powell clarified that the bank is fully committed to the accommodative policy. He seemed to end speculation of early tapering of the Fed’s bond-buying scheme. The pledge to print dollars as long as necessary – and to keep rates at zero – only temporarily hit the greenback amid Biden’s speech. Investors may have a rethink of Powell’s words, which put to rest the taper talk coming from his colleagues.”

“The Retail Sales report for December will likely show a year-over-year gain in 2020, but a subdued Christmas shopping season. The University of Michigan’s initial read of Consumer Sentiment is also set to decline. These publications may push the dollar lower as investors price in lower-for-longer interest rates and Quantitative Easing.”

“EUR/USD dropped below the former triple bottom of 1.2125 on Thursday but recaptured that line. The new 2021 trough is 1.2110, and as long as that line holds, bulls have room to recover. Below 1.21, the next lines to watch are 1.2060 and 1.2040. Resistance awaits at Thursday’s peak of 1.2175, followed by 1.2222, the weekly high.”