EUR/USD - H1
Intense risk aversion is the main driver today, after the (WHO) warned of a new COVID-19 variant, which leads investors towards safe-heavens, mostly the Japanese Yen. The US Dollar fails to benefit thus far, since COVID jitters undermine expectations for faster tightening path by the Fed.
EUR/USD had dropped to fresh 2021 lows on Wednesday, but has since managed to rebound and breaks above its EMA100 today, as we had warned in our last analysis. This move, allows it to challenge the key 1.1290-1.1300 level (61.8% Fibonacci of the "2020 Low/2021 High" advance), but we are cautious for a larger correction towards 1.1374 at this point. Daily closes above 1.1290-1.1300 will be supportive.
Past Performance: Past Performance is not an indicator of future results.
The break above EMA100 eases downward pressure in the near-term, but the broader trend remains descending. Furthermore, we doubt that risk aversion - and more so COVID-19 fears - can carry the common currency much higher, as the pandemic situation worsens in Europe and Germany.
More to it, the overarching theme that leads the Eurodollar towards another bad month, is monetary policy divergence between the Federal Reserve and the European Central Bank.
Pandemic fears don't bode well for prospects of a faster tightening by the US bank, but it remains far more hawkish than its European counterpart – something that was reaffirmed by this week's minutes and commentary.
As such, risk of fresh 2021 lows (1.1185-4) has not gone away and as long as EUR/USD stays below 1.1290-1.1300 there is scope for larger decline.
Extra caution is needed, as market sentiment is the main theme today and the half-day in the US stock market can impact volatility/liquidity conditions.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.