The euro continues to have a quiet week and is drifting on Wednesday. EUR/USD is currently trading around 1.1310.
There are no tier-1 events out of the eurozone or the US today. Investors will be keeping an eye on US Pending Home Sales, but these are unlikely to cause much of a reaction in the currency markets. The dollar index has dipped to 96.11, down 0.09% on the day, marking a fourth day of sideways trading. The index faces resistance at 96.30 and has support at 95.80.
With a light economic calendar this week, investors are keeping an eye on the spread of the Omicron variant. Omicron is much more contagious than Delta but most reports indicate that it is less severe. This has given a boost to risk sentiment, but one negative headline about Omicron, especially with the illiquid markets during the holidays, could quickly dampen risk appetite.
ECB to remain dovish
The ECB has pledged to continue its dovish monetary policy and the Omicron outbreak will only reinforce this stance. The Federal Reserve and the Bank of England are moving in the opposite direction and are tightening policy. One of the key reasons for the divergence of policy is that inflation is red-hot in the US and UK, but has risen more moderately in Europe. We are seeing inflation figures of 6% in the US and 5% in the UK, which has forced the central banks to acknowledge that high inflation is not temporary – the Fed recently abandoned this stance and ‘retired’ the term “transitory inflation”. With inflation running at around 3% in the eurozone, the ECB can afford to continue its loose monetary policy as we move into 2022.
- EUR/USD has support at 1.1255. Below, there is support at 1.1190
- There is resistance at 1.1364 and 1.1408
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