Despite factors supporting further gains for the EUR/USD, there is a reservation for the currency pair to surpass the resistance level at 1.1900. This is because it will support the next most important move towards the psychological resistance level at 1.2000, which has received more follow-up and comment from the monetary policy officials at the European Central Bank. They see the strength of the euro exchange rate as a major obstacle to the bank’s mission to revive the European economy in the face of the pandemic. The currency pair's gains since the beginning of this week's trading stopped at the 1.1894 resistance before settling around the 1.1840 level at the time of writing. This comes ahead of the announcement of important US data and new upcoming statements by the Governor of the European Central Bank, Christine Lagarde.
In general, the EUR/USD exchange rate recorded an advance between the risk currencies and other assets, but it may be subject to further weak performance due to the threat of a looming Brussels closure, similar to that in the United States. The closure is due to the European Union budget, prompting some analysts to call for selling the European currency, even as stock and commodity markets continue to attract support from recent developments in the search for a coronavirus vaccine.
Commenting on the performance, Mazen Issa, an analyst at TD Securities, said: “We think the markets are overestimating the timing of vaccine news and their scalability. We also believe that markets are ignoring the near-term risks that arise from increased COVID-19 cases, slowing mobility trends, and a smaller financial package (which may also see timing delays), so that's an environment that we think predicts a more defensive stance in the short term (i.e. slightly favourable for the US dollar) and less favourable for EURUSD.”
The euro’s performance was weak due to disagreement over the terms of the Brussels budget for the next seven years and financing a recovery from the coronavirus. That recovery package amount totals about 1.8 trillion euros for the continent over several years, threatening to paralyze the financial bloc from January onwards. This is after Hungary and Poland used their veto power against the package in their objections to the conditions within the package related to the enforcement of EU rules.
Eastern European members have been in conflict with Brussels for years after European officials tried to use their interpretation of the EU treaty provisions covering the rule of law to oppose the policies and procedures of the Hungarian and Polish governments. Hungary, said to be the biggest obstacle to the budget deal, accused the European Union again this week of double standards politically motivated in its interpretation and enforcement of the rule of law.
“The EU budget veto by Hungary and Poland did not materially affect the EUR sentiment. I expect the topic to be on the European Union Council’s agenda today. In the event of the budget stalling, expect weaker EUR/USD.” Said Jeremy Stritch, Forex analyst at CIBC Capital Markets.
Previously, an ideological battle over how to run European countries had limited consequences for everyone involved, including the euro. European officials have long floated the idea of using financial sanctions, particularly withholding European funds, to force Eastern Europe to comply with Brussels' own interpretation of its own treaty rules, but these attempts have always been set for failure, which means that every country still exercises a national veto on budget and spending decisions.
Technical analysis of the pair:
Despite the recent EUR/USD rebound down, the pair still has the opportunity for an upward correction. As I expected before, breaking through the 1.1900 resistance will spark more buying interest that might push it towards the psychological resistance at 1.2000. At the same time, it will be an important place to consider selling, as the level irritates the monetary policy officials of the European Central Bank as they perceive the strength of the euro as an obstacle to their efforts to revive the bloc's economy. On the daily chart, the real threat to the current move will be a push below the 1.1745 support. I still prefer to sell the currency pair from every upward level.
Today's economic calendar data:
For the euro, the Eurozone’s current account data will be announced, and later statements by European Central Bank Governor Lagarde. Regarding the dollar, the weekly jobless claims, the Philadelphia Industrial Index reading, and the existing US home sales will be released.
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