More risk appetite amid investors' optimism about coronavirus vaccines contributed to the continuation of the EUR/USD's bullish momentum. Gains were capped by testing the 1.1930 resistance, its highest level in nearly three months, and stabilized around 1.1915 at the beginning of trading on Thursday. Thursday is the American holiday of Thanksgiving, which reduces liquidity in the markets, giving the pair an opportunity to maintain its gains for the end of the week’s trading and record a new bullish week.
Amid this positive performance of the euro, technical analysts at Commerzbank see that it is steadily preparing to break above the nearby resistance and continue its rise. Gains were achieved while Germany was looking forward in December to a possible decision on resolving a dispute over the European Union budget. So far, the bullish signals from the charts reinforce expectations of a strong economic recovery in 2021. Accordingly, Karen Jones, Head of Technical Analysis for Currencies, Commodities and Bonds at Commerzbank says, “The EUR/USD pair is at the top of its 3-month upper range. Closing above 1.1926 should be sufficient to generate enough interest to challenge the stronger top at 1.2014. The analyst believes that we have a positive indicator, DMI and MACD, and will see a breakout higher soon.”
Jones says that any drop in the EUR/USD should cost it its strength at 1.1695, before moving towards the 1.1612 and 1.1600 support which is considered "a temporary floor for the market." She and the Commerzbank team are buying the euro from $1.1780 and are targeting the 1.2010 high.
Technical indicators indicated a rise in the euro before and after German Finance Minister Heiko Maas expressed confidence that the dispute between the EU and members of the Eastern Bloc, Poland and Hungary, could be resolved by the end of the European Council meeting in December. Maas made the remarks during a panel discussion at the Berlin Policy Forum, according to Politico, and one week after the two eastern European members vetoed the seven-year European Union budget because of their objections to the new terms and conditions related to considering "the rule of law".
If the EU budget fails to secure unanimous support from all members at next month's summit, the much-anticipated coronavirus recovery fund will be delayed. Pursuant to concerns regarding government spending in Europe last week, the EUR has hindered the resistance of 1.19 and was weaker overall.
Benedict Lowe, an analyst at BNP Paribas, said: “We believe that a solution to the impasse over the European Union’s budget and the recovery fund will be found at the end of the day. However, given that there is no clear solution and finding a solution can take time, in our opinion. This makes it possible that the EU budget will not be agreed upon by the end of the year, and that the implementation of the recovery fund may be delayed, although the economic impact of this is likely to be limited.”
The EUR's gains may be economically supported by the better-than-expected IFO survey for November and the upgrade to German GDP growth numbers for the third quarter, as both come with bullish signals emerging from the charts. The German IFO index fell from 92.5 to 90.7 this month, higher than expectations of 90.3. Also, the GDP for the third quarter was revised to 8.5%, up from the initial estimate of 8.2%, which was a positive surprise to the markets.
Despite the optimism, Klaus Westsen, Chief Economist for the Eurozone at Pantheon Macro Economics, says: "We are very confident that the rest of the major European economies will publish very bleak GDP data for the fourth quarter, but we are now less confident about Germany."
The data contradicts the results of the PMI data, which showed a big jump in expectations, due to the possibility of a COVID-19 vaccine. But remember, an IFO survey asks respondents about their expectations in six months, compared to 12 months in PMI. In any case, we need to look at the data for December to get a clearer picture of the optimism of business leaders after the good news this month regarding vaccines.
Expectations for a recovery in Europe have been boosted in recent weeks by a double dose of stimulus developments, including the outcome of the US election and progress in the race for a coronavirus vaccine. These two factors were at the top of investors' minds this week.
Technical analysis of the pair:
The general trend of the EUR/USD is bullish and breaking the 1.1900 resistance may stimulate the bulls to move towards the next psychological resistance level at 1.2000. That usually brings comments from the monetary policy officials at the ECB that the strong value of the euro weakens the economic recovery of the bloc in the face of the pandemic. The current performance on the charts will remain at the support level 1.1745 as the most important for bears to return to control performance again. In the midst of a US holiday today, the euro will await the announcement of the GFK index of German consumer climate, money supply in the Eurozone, as well as the policy report from the European Central Bank.
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