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market review 10 December 20

10 December 20

EUR/USD Forecast: Will the ECB deal a third blow to the euro? Bears are gaining strength

A three-course dinner failed to bring the UK and EU closer together to a Brexit deal – and a bipartisan proposal in Washington also falls short of sealing a fiscal stimulus deal. Both sets of negotiations remain stuck and have weighed on EUR/USD, ahead of a more-European specific event.

New Brexit deadline: After a long dinner and Brussels, European Commission President Ursula von der Leyen and UK Prime Minister Boris Johnson concluded that they are still “far apart.” They have instructed their teams to negotiate with a new deadline in sight – Sunday night.

No white smoke on Capitol Hill: US Treasury Secretary Steven Mnuchin said Democrats and Republicans agreed on 90% of the relief package – but are still at odds over liability clauses and state aid. Contrary to Brexit, there is no deadline and there seems to be more for compromise.

After UK and US developments dominated euro/dollar, the focus shifts to the old continent. Christine Lagarde, President of the European Central Bank, is set to deliver on the pledge to add more stimulus via expanding the ECB’s bond-buying scheme.

A surprise may come from comments on the exchange rate. Lagarde may note that the rise of the euro pushes inflation lower and that the ECB is monitoring its value closely. The Frankfurt-based institution does not officially target the exchange rate, but it could hint that its recent rise may trigger a rate cut – that would already shock markets and send the euro down, but the chances remain slim at the moment.

Euro/dollar may receive a boost from the US Food and Drugs Administration, which is set to approve the Pfizer/BioNTech coronavirus vaccine, following Canada’s and Britain’s footsteps. A shot in the arm could not come sooner – over 3,000 lives were lost to the virus in America on Wednesday, similar to the death toll in 9/11.

Technical Analysis

EUR/USD is trying to settle below the nearest support level at 1.2090. Yesterday, EUR/USD made an attempt to gain downside momentum below 1.2090 but received support near 1.2060 and rebounded back to 1.2090.

If EUR/USD settles below the support at 1.2090, it will head towards the next support level which has emerged at 1.2060. A move below 1.2060 will open the way to the test of the support at the 20 EMA at 1.2010.

In case EUR/USD declines below the 20 EMA at 1.2010, it will head towards the support at 1.1965.

On the upside, EUR/USD needs to stay above the support at 1.2090 to have a chance to develop upside momentum. The next resistance level for EUR/USD is located at 1.2155. A move above this level will push EUR/USD towards the recent highs at 1.2175.

Dax holding above 13300 allows a recovery

Daily Analysis

Dax holding above 13300 allows a recovery to towards important resistance at the September high at 13440/460. A break above the gap at 13492 is an important buy signal initially targeting 13600/610 & probably as far as the all time high at 13800/824.

Holding below 13250 risks a retest of of support at 13185/175. (This support held the downside). Below 13130 signals further losses towards 13050. Strong support at 12960/930 for profit taking on any remaining shorts.

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