Currency pair of the week: EUR/USD

Just as with Europe, a crisis (Brexit) has been averted in the US (stimulus package)


A Brexit deal has been reached!  A huge sigh of relief has spread through the markets as the EU and the UK have come to terms over a trade deal ahead of the January 1st  deadline for the UK to leave.  The remaining issues regarding fisheries and a level playing field have been resolved and, as a result, tariffs and quota restrictions which threatened economic turmoil have been prevented.  On Monday, EU members unanimously approved the agreement, which allows for a provisional application of the deal.  The trade deal must formally be voted on by the European Parliament, which may not occur until February!

Now that an agreement has been reached, Europe can once again focus on “normal” problems such as the coronavirus, vaccine distribution, and revitalizing jobs and the economy.    Recently, EU members agreed on a seven-year budget,  which included 750 billion euros in pandemic relief.  This package, in addition to the Brexit agreement, has given the ECB has a clearer path on direction for monetary policy.  The next ECB meeting, however, isn’t until January 21st.

On Sunday evening, President Trump finally signed the second stimulus package worth nearly $900 billion, however he was not happy about it!  The package calls for $300 in emergency aid per week for unemployed workers.  These emergency benefits expired on Saturday and with the President’s signature, now allows them to continue.  In addition, the package calls for $600 per person in direct aid.  The President had threatened to veto the agreement over the amount of direct aid, as he was insisting on $2,000 per person.  Pressured by advisors to sign the deal as “something is better than nothing”, he begrudgingly signed the bill into law.  The package also included a spending bill, which if not signed, would have led to a partial government shutdown. 

Just as with Europe, a crisis has been averted and the US can get back to other ongoing issues, such as the coronavirus and vaccine distribution.  The US has given nearly 2 million doses of the vaccine to frontline workers and the elderly, however widespread distribution is not expected until late Q1 or early Q2.  In addition, when the FOMC met earlier in December they were “on hold” waiting to see what the federal government would offer in terms of stimulus.  Now that they have stimulus from the government, the Fed can act as necessary.  More stimulus is assumed once Joe Biden takes over as President on January 20th

On a daily timeframe, EUR/USD  has run into a confluence of resistance at near 1.2270.  There is horizontal resistance from April 2018, as well as, the 161.8% Fibonacci extension from the highs of September 1st to the lows of November 4th, near 1.2255.  Price has pulled back from those levels and is currently testing an upward sloping trendline from the November 4th lows, near 1.2175.  This level acts as the first support level.  Notice that the RSI has pulled back into neutral territory, indicating a potential for more upside.

Source: Tradingview, City Index

On a 120-minute timeframe, EUR/USD has been in a trading range since mid-December between 1.2120 and 1.2270.  In addition, the pair is running into a short-term trendline near the same level from the long-term trendline on the daily at 1.2175.  The next support level is a series of recent spike lows near the channel low at 1.2120, followed by support at 1.2060 and then the September highs near 1.2011. Resistance is not until the recent highs near 1.2270.  Above there, resistance doesn’t come in until spring 2018 highs near 1.2425.

Source: Tradingview, City Index

As we head into yearend on Thursday, traders could expect this week to be slow and many traders and funds are on holiday.  However, be cognizant of any quick, volatile moves on light volume as some “big money” funds may try and take advantage of these markets.  

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