22.01.202116:55 Forex Analysis & Reviews: EUR/USD: euro continues rising despite various factors

Long-term review

Exchange Rates 22.01.2021 analysis

The US dollar may show the worst trading week of this year.

In recent days, the US stock market was rising. All three main US indices have advanced by 2% and more since the beginning of the year.

Strategists at the National Australia Bank note that market participants are focused on the possible benefits of budgetary plans developed by Joe Biden's administration. They prefer ignoring various negative factors. While stocks are gaining in value, the US dollar will hardly rise.

Analysts suppose that the new record highs hit by the US key stock indices early this week is a sign that investors remain positive.

European Central Bank President Christine Lagarde also shares this attitude.

She said that "risks to growth in the eurozone remained tilted to the downside", though the bias had become less pronounced.

She also added that the vaccination programs launched at the end of December gave confidence that European countries would successfully cope with the crisis in the healthcare system. In the medium term, the recovery of the eurozone economy should be supported by favorable financial conditions

The ECB remained its monetary policy unchanged during its meeting in January. The regulator also noted that the asset-purchasing program would be only partially used, if the EU funding conditions remained favorable.

Less dovish than expected ECB comments allowed the euro to recoup some of its losses against the US dollar. On Thursday, the euro/dollar pair reached its multi-day high near 1.2170.

At the same time, the US dollar index dropped to its week low near 90 points.

The euro ignored Lagarde's announcement. She said that the regulator was closely monitoring the euro's appreciation. The fact is that the exchange rate is halting the EU inflation that has failed to reach the targeted level.

It seems that only a lower cost of loans may lead to a weaker euro. Otherwise, it will be extremely difficult to lower the euro without serious reasons. Moreover, the US may continue accepting new stimulus packages putting the greenback under pressure.

On Friday, the main currency pair jumped to its week highs around 1.2180.

European leaders are concerned about new strains of the coronavirus. The spread of the new virus type may result in longer and tougher containment measures.

Today's preliminary data showed that the eurozone composite PMI dropped to 47.5 points compared to 49.1 points in December.

The current reading is the lowest in the last two months.

"A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter Covid-19 restrictions took a further toll on businesses in January," said Chris Williamson, chief business economist at IHS Markit.

Despite bad news, the single currency is staying afloat against the US dollar.

If the pair breaks the key resistance level of 1.2190, it may reach such levels as 1.2200, 1.2270, and 1.2310.

The support level is located at 1.2150 and then, at 1.2130 and 1.2080.

Viktor Isakov,
Analytical expert of InstaForex
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