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EURUSD: euro bulls aim to pare yesterday’s losses in Asian trading

The EUDUSD paid traded slightly lower, off 0.20% on Wednesday, January 20. Heightened euro volatility was seen during the European session. The single currency slipped 81 pips against the dollar to 1.2077, coming under pressure due to the tightening of lockdowns in Europe alongside the identification of new virus mutations.

German medical authorities announced the discovery of a new coronavirus strain in 35 patients from Bavaria, as well as the British variant of the virus in three Berlin patients. German Chancellor Angela Merkel said the restrictions will be extended until February 14.

An unexpected rally in the loonie after a BoC meeting triggered a sharp retracement in the euro and franc. Conversely, the aussie and the kiwi saw an uptick in morning gains. The BoC left its target for the overnight rate at the effective lower bound of 0.25%, while forecasting GDP growth at 4% in 2021 and almost 5% in 2022.

Today’s macro agenda (GMT+3)

  • 12:30 UK: BoE credit conditions survey
  • 14:00 UK: CBI industrial trends orders (January)
  • 15:45 Eurozone: ECB interest rate decision; 16:30 ECB press conference
  • 16:30 Canada: new housing price index (December); US: building permits and housing starts (December), initial weekly jobless claims, Philadelphia Fed manufacturing index (January)
  • 18:00 Eurozone: consumer confidence flash (January); US: leading indicators (December)
  • 20:00 BoE governor Andrew Bailey speech
1

Current outlook

The euro recovered from 1.2077 to 1.2118 during yesterday’s North American session. The key pair continued to rise to 1.2138 from the opening of Asian trading this morning. The dollar is trading in the red against all major currencies. The aussie and the kiwi are again topping the leader board, implying heightened demand for risk-sensitive assets.

Meanwhile, euro crosses have yielded their positions to the aussie and the kiwi, while others are moving higher. There was a decline of 67 degrees from a high of 1.2158. Buyers pushed up the price action by about 67% vs. the decline. From the low of 1.2077, the 67-degree angle stands at 1.2159. Look at the ascending channel, the target of short-term speculators is 1.2170. The trendline from the low of 1.2054 also passes through this point.

Take a look at the gains from 1.2054.  After breaking out of the top at 1.2082, the price action retraced to that level. Assuming that the price follows a similar scenario, then before the uptrend, we can expect the price to retrace to the lower bound at 1.2120. It is also worth noting that NZDUSD is at the U3 line. AUDUSD is trading near the U3 line. If a downward correction in these pairs happens during European trading, it will spill over to all pairs before the North American session.

The euro could experience heightened volatility ahead of the North American session, as today the ECB will announce its interest rate decision and ECB President Christine Lagarde will hold a press conference. If the 1.2120 support fails to hold, the price action will fall back to the lower line of the channel at 1.2088.

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