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The threat of the spread of Omicron has faded into the background. On the contrary, there were hopes that the new strain would act as a light at the end of the coronavirus tunnel. The mutation made it less dangerous, although more contagious.
If these judgments are confirmed, the tourism industry will breathe a sigh of relief. By spring, perhaps, the virus will not interfere with the movement of people. In this case, the next investment idea on the market will be the shares of air carriers and tourism, which were at the bottom due to the pandemic.
The markets continue to win back positive ideas, the demand for risk has improved, but this does not help the euro in any way. The exchange rate continues to decline against the dollar. The downward scenario in the EUR/USD pair, according to strategists, is supported by the European Central Bank's commitment to a soft monetary policy. The central bank is categorically against even the slightest progress in the form of a reduction in the incentive program, despite the painful increase in inflation. If everything stays as it is, the unprincipled, speculative decline of the euro will continue.
Given the growing speculation about a faster curtailment of stimulus programs in the US, the balance of risks for EUR/USD will shift downwards more strongly. The differential of rates on short-term American and German bonds has once again moved into growth, approaching the local recent high. Apparently, it will be broken sooner or later. This factor (the growing differential) is now the main bearish driver for the euro.
The EUR/USD pair has been gradually sliding down in recent sessions, a little more and it will begin to collapse under its own weight. A breakthrough of the 1.1200 mark from the bears will be indicative and will increase the pressure on the quote. It is possible that this will lead to a massive triggering of stops.
Until next week, the euro will definitely remain under pressure, before two important meetings – the ECB and the Federal Reserve – bulls are unlikely to decide on exploits. The US central bank should announce an acceleration in the pace of curtailing the quantitative easing program, while the European one, speaking in the language of financiers, will continue to be patient. Europeans still believe in the temporary nature of inflation, they may not talk about curtailing incentives until February next year.
In this case, the euro has no chance, and the dollar has the opposite. This week is going to be pretty quiet. The dollar, as you know, grows stronger not on some events, but on days of calm, when, it would seem, there are absolutely no reasons to move. In this regard, it is worth waiting for the update of the euro lows.
A breakthrough of 1.1200 will target 1.1160. Scotiabank believes that EUR/USD may well sink to 1.1000.
The support levels are 1.1200, 1.1165, 1.1120. Resistance – 1.1275, 1.1310, 1.1345.
While there are no options, the euro will decline. However, it should be borne in mind that when falling to the area of 1.1000 positive or negative, it will be possible to start buying the pair. The most ambitious scenario is growth to 1.2000.
According to the dollar index, analysts are more than positive, the indicator formed a base around the 89.50 mark and launched a steady upward trend. Societe Generale predicts the growth of the US currency index to 99.75.
"On long-term timeframes, you can see that the market since 2017 is still within a wide range, between two converging trend lines. The boundaries of this range are designated as 89.50/89.20 and 103.00. These are the key reversal levels for the market, "analysts comment.
On short charts, pullbacks are visible, but nothing terrible happens. The indicator should get support in the 95.10/94.50 area. As long as it stays above these values, a deep decline will not occur.
Credit Agricole speaks of limited upside potential for the dollar. The reduction in dollar liquidity at the end of the year and at the beginning of the next should stimulate the currency, but most of the positive factors are already in the price and the dollar is overbought. The greenback can benefit from being a defensive asset. At the same time, one should not expect cardinal upward shifts.
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