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The final week of the outgoing year is passing, and the world is preparing for the new year. Trading volumes are low, no important events and macroeconomic publications planned, so the euro has no reason to leave the current range, as has been said many times. On the other hand, it can also contribute to strong movement in any direction.
Bulls have already tried to continue pushing the quote up on the optimism of Omicron. The strain is less dangerous compared to the related variant Delta. However, research is still being conducted, and there is nothing much to be happy about yet. The number of people infected with the virus in countries such as the UK, France is still increasing.
As for the reaction of the markets, they began to develop immunity to this kind of news. Despite the rapid spread and a huge number of cases, mortality from the new variant is not growing. If there is no negative information on Omicron at the beginning of next year, including an increase in the number of deaths, investors will stop paying attention to covid topics.
Will it help the euro? There are big doubts.
In the conditions of thin trading, the EUR/USD pair is trading above the 1.1300 mark and cannot decide on the movement vector. This pattern is likely to last until the end of the week and year. In general, the mood for the pair remains mostly bearish.
However, the fact that the quote has settled above the key support levels indicates a pause in the movements on the bears' part. They will not take any important decisions in the coming days.
Support is located at 1.1250, 1.1210, 1.1185. Resistance is marked at - 1.1345, 1.1380, 1.1425.
If we talk about estimates for 2021, they remain negative for the euro. Economists continue to wait for the euro to fall against the dollar. Credit Suisse predicts the EUR/USD pair to decline to the area of 1.1010 and below. There is a scenario in which the 10th figure can resist. In this case, the pair will be trading in a sideways range for quite a long time.
A lot depends on the behavior of the dollar. With further strengthening of the US currency, the EUR/USD pair risks going to the 1.0800 mark, but only after a period of consolidation around 1.1000.
The dollar index made attempts to grow on Monday, but bulls did not manage to move much away from the psychologically significant 96.00 mark. The indicator, apparently, will remain trading until the end of the year between local highs near 96.94 and local lows around 95.54. In general, according to analysts, the greenback retains positive dynamics and the potential for further strengthening.
The British pound has strengthened, while economists believe that its growth will be short-lived. Why? We continue to compare the potential of the United States and Britain, including monetary.
If inflation in both countries continues to creep up, the British economy will grow at a slower pace than the American one.
Yes, the Bank of England raised rates, while the Federal Reserve only voiced such intentions. Everything can be overplayed in favor of the US in the near future. The US central bank completes the reduction of incentives in March, a rate hike is immediately possible. England is unlikely to decide on more aggressive actions against the PREP.
Omicron is strangling the British economy. Purchasing and business activity in the country is weak. The consumer confidence index fell to -15 in December from November's -14.
In the US, it's the opposite. Despite the increase in inflation and the number of infected, consumer sentiment in the country improved in December by 70.6, which is higher than the preliminary value of 70.4 and the November value of 67.4. In addition, other fairly positive data continue to arrive. GDP growth for the third quarter turned out to be better than preliminary estimates, the number of initial applications for unemployment benefits remains at the lowest level in several decades at 205,000, and orders for durable goods increased by 2.5% in November. Noticeable changes have occurred in the sales of new homes. Volumes increased by 12.4% after falling by 8.4% in October.
US consumer sentiment improved in December, despite an increase in the number of coronavirus infections and high inflation rates.
Even if we let go of the situation with the virus and its impact on the British economy, the prospects of the United States are still rated by economists most highly compared to the UK.
The BoE is likely to refrain from further tightening policy, while the Fed openly demonstrates a craving for a tough policy, which should support the dollar in 2022. If the PREP of the two central banks are really multidirectional, the GBP/USD pair will resume its decline in the new year.
Be that as it may, the main scenario for the pound is still a bearish trend. However, to be sure of this trend, you still need to wait for the quotes to return to the zone below the support level of 1.3375.
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