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Euro bulls looking to hold above 1.13

The EURUSD pair surged 0.34% to 1.1330 on Thursday, December 16. The upward momentum got under way during Asian trading and picked up after the Bank of England meeting.

The BoE took markets by surprise, becoming the first major central bank to hike rates since the onset of the pandemic, raising borrowing costs by 15 bps to 0.25%. Omicron added uncertainty, but Bank of England Governor Andrew Bailey cited "more persistent" inflation.

The European Central Bank left key rates unchanged at its meeting. The ECB will increase its pace of regular bond buying over the next six months as it phases out emergency bond purchases.

The PEPP program will be wrapped up in March 2022. APP will continue at a pace of EUR 20 bln per month, but will increase to EUR 40 bln in Q2 and decrease to EUR 30 bl in Q3.

Christine Lagarde released forecasts showing strong economic recovery along with a forecast of accelerating inflation. She still believes that inflation is temporary.

Today’s macro agenda (GMT+3)

  • 10:00 Germany: PPI (November)
  • 10:00 UK: retail sales (November)
  • 12:00 Germany: Ifo business climate (December)
  • 13:00 Eurozone: core inflation rate (final, November)
  • 15:00 UK: BoE: quarterly bulletin
  • 21:00 US: Fed member Cristopher Walter speech
  • 21:00 US: Baker Hughes weekly oil rig count

Current outlook

Major currencies are showing mixed performance. By the time of writing, the euro was trading at 1.1342. EURUSD tops the leaderboard (+0.11%). Buyers look set for a leg up to 1.1400. Today’s key macro releases include Germany’s Ifo business climate.

Technical analysis

EURUSD retreated from 1.1360 to 1.1298. Volatility decreased after Christine Lagarde's speech, while price action rebounded to 1.1349. Buyers remain in a bullish mood, but volumes could stay thin ahead of the weekend. Pressure on risk-sensitive assets comes from the deteriorating Omicron environment. The new strain continues to spread rapidly across Europe and could result in tough lockdown measures. If price action remains above 1.1300 until Monday, we can expect to see a breach of resistance at 1.1385.

 

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