EUR USD and DXY movement!
Today we could see some ease in the US Dollar chart, which ended with increasing EURUSD above 1.13 once again.
EUR USD chart these days, more than everything effected by central bank’s decision. As we know, last week we had the central bank's meeting and their decisions. FED increased the tapering level and expectations for a rate hike in 2022, BoE surprised investors and traders by increasing the interest rate by 15 bps to 0.25%, as the first G7 central bank to lift interest rates during the current cycle. In Europe, the Central bank had a bit more measured decisions. Finally, they confirmed that they will end the Emergency Purchase Program (PEPP) in March 2022 at a slower pace than the previous quarter in the next quarter.
While we had the central bank's decisions and monetary policies, their economic outlook in these meetings on the other hand got more attention than earlier meetings. ECB updated CPI inflation at 2.6% for 2021 and 3.2% for 2022 but saw inflation slowing to 1.8% for 2023 and 2024. On the GDP front, ECB lowered its forecast for 2022 to 4.2% but raised its forecast for 2023 to 2.9%. These expectations tell us that while we are waiting for a bit slower increase in the Euro-zone economy compared with others, it seems more stable and steady.
US economic growth will be better than Eurozone in next year, while they will start increasing the rates in 2022 as well, which is far to expect from ECB in the current situation. Increasing the rates and bond yields will increase the US demand, while European lower than expected economic data with lower interest rates, can put the euro in the sell position against the US dollar, but as its overall outlook is positive, Euro will be stronger against its other crosses like CHF, Lira, Ruble, Aussie, and Kiwi.
On the other hand, as we saw today, the US dollar is softening as the risk-off mode is almost gone for now. Therefore, with less market risk and uncertainty about Biden's BBB (build back better) plan's fat, for the short term, USD can be under pressure. So in the short term, these market conditions may put the US dollar a bit under pressure. However, in the longer term, demand is there, and it can limit the EURUSD bull's in the chart. From the technical point of view and what we can see in the daily chart, 1.1422 is the key and first resistance. Breathing above 20 DMA and the R1 can change the market direction in the short term up to 1.1525, however, it is a bit unlikely for now.