EUR / USD range conditions unchanged since November 2021

EUR / USD has moved in a narrow range since late November 2021. What can cause a breakout and more importantly where would it head next – 1.10 or 1.20?

The EUR / USD exchange rate is in a tight consolidation which started last year on November 26th. For over a month and a half, the most important currency pair on the FX dashboard appears to be stuck at the 1.13 area.

Each attempt to break below 1.13 sparked new waves of buying, while any attempt to break 1.14 was met with sell orders. So what must happen for the EUR / USD to move? Besides, where will it go once the range is finished?

Hawkish Fed is bullish on the US dollar

Since last June, the EUR / USD has followed a downward trend. It fell from above 1.20 to below 1.12 mainly thanks to an accommodating ECB. In addition, the Fed’s hawkish turn in the last quarter of last year triggered a further decline.

Today, the Fed is almost certain to hike rates in March 2022. Plus, balance sheet reduction, or quantitative tightening, will begin shortly thereafter.

Inflation is the reason the Fed is in a hurry to raise the fed funds rate. The central bank is responding to a tight labor market and rising inflation by tightening monetary policy.

In theory, all of the options mentioned above are bullish against the US dollar. However, some balancing facts come from across the Atlantic Ocean.

Factors weighing on the euro should ease soon

The divergence in monetary policy between the ECB and the Fed played a crucial role in the fall of the EUR / USD, particularly during the latter part of 2021. But that is not the only thing that has caused it. do.

Rising energy import costs weighed on the euro zone’s trade balance. In addition, the resurgence of COVID-19 cases and the slowdown in China (a major European trading partner) have also had an impact. However, these factors are expected to subside soon, perhaps as early as the spring.

What future for EUR / USD – 1.10 or 1.20?

Technical traders are looking for a breakout. 1.14 and 1.1250 are key levels in the coming weeks, with an increased probability that both will be visited.

EUR / USD should find buyers on any attempt at the 1.10 area in the medium to long term, while a move above 1.16 should push the 1.20 level back in the charts.

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