EUR / USD under observation and always above the threshold of 1.2: but until when? The single currency could weaken temporarily, but the forecasts on the euro-dollar exchange rate remain bullish for various macroeconomic reasons: if the EUR / USD exceeds 1.22 it is very likely that the market will go higher, 1.23 would represent resistance massive as in the past.
The euro-dollar exchange rate continues its rise: the European currency strengthened further against the greenback, gaining + 0.07% on the morning of Wednesday 10 February, rising to 1.2125. It should also be noted that the dollar fell close to two-week lows, with demand for safe assets falling. The cross certainly benefited from the decline in US debt yields and also from the rather euphoric sentiment of the markets. But how long will the euro-dollar rise last?
The forecasts indicate that the upward trend will continue in the medium to long term, even if momentary trend reversals are possible due to contingent factors. Let’s first look at an analysis of the factors that could hinder the bullish trend of the euro-dollar, then the forecasts on EUR / USD supports and resistances for the next few months.
Euro-dollar bullish trend: what factors could hinder it
First, the Federal Reserve: the latest US nonfarm payroll report showed that employment growth is low and the Fed may be urging lawmakers to act. Investors could respond to this reminder by selling bonds in anticipation of higher debt issuance, momentarily strengthening the dollar. Consumer prices are also expected to pick up slightly.
The second aspect concerns Europe. The EU aims to vaccinate 70% of adults during the summer, a goal that seems more difficult with each passing day because vaccine supplies have been severely slowed and their distribution is more complicated than expected. Meanwhile, the epidemic is advancing and the powerful Germany has been forced to extend the lockdown. All of this could hamper economic recovery and the euro.
A positive note is instead the probable creation of a government led by Mario Draghi in Italy, which should lead to greater political stability and a more linear management of the Recovery Fund.
But Joe Biden’s economic policy will be the most important macroeconomic factor for the dollar, in particular the very early stages of the “recovery plan” drawn up by the new administration could have a significant impact on the EUR / USD cross.
Traditionally viewed as a safe haven, the dollar has sunk against major competitors as optimism about monetary and fiscal support, solid corporate earnings and coronavirus vaccines have boosted risk appetite.
There is also uncertainty about the effects that the $ 1.9 trillion stimulus package will have on the dollar. On the one hand, it is expected that the US will accelerate a recovery relative to other countries, strengthening the currency. But on the other hand, it is an important driver in a global reflation narrative that should lift riskier assets at the expense of the dollar.
Euro-dollar forecasts, resistance and supports in the first half of 2021
In December, the euro-dollar exchange rate rose from 1.19 to 1.229, reaching 1.2338 on January 6. Then followed a trace back to 1.195 on 5 February, the day from which the uptrend resumed: on Wednesday 10 February the EUR / USD hit 1.212.
There is a lot of resistance just above, so going further will probably not be immediate. At this point, if the cross exceeds the 1.22 level it is very likely that the market will then go higher. 1.23 would represent massive resistance as this has already been demonstrated in recent past years.
The support level extends up to 1.19: if the EUR / USD falls below, a significant collapse is likely. It does not seem to happen in the short term, but it is an area to pay attention to precisely because of the factors set out above.
At this point, it is likely that the market will consolidate between the level of 1.20 and the level of 1.23 (the euro tends to be often fluctuating). The focus on the lack of coronavirus vaccine doses in the EU and the huge amount of stimulus from the US will continue to hold the market in this area, thus providing a range of 300 points. However, it will be necessary to break the resistance of 1.22 to move towards the upper part of the range.