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22.01.202109:07 Forex Analysis & Reviews: EUR/USD. PMI, ZEW and a weakening USD

The US dollar index declines continuously. This indicator is slowly but quite confidently moving towards the base of the 90th mark, expressing the general skepticism in the market about the US currency. This fact allows the buyers of the pair to maintain above the support level of 1.2150 (Tenkan-sen line on D1) and expect to retest the nearest resistance level of 1.2200 (middle line of the Bollinger Bands, coinciding with the Kijun-sen line). Today's Asian session was quite calm, without any superior strength that could provoke volatility. The currency market is quite moving by inertia, supported by the dollar's gradual weakening.

In fact, the US currency has become a victim to its protective status, which has a high demand in times of uncertainty and rising anti-risk sentiment. But as soon as the difficult times are over, all traders take profits and abandon this currency. In early 2021, there was a stir around the dollar, following the tragic events in Washington, when Trump supporters decided to attack the Capitol. This event was historic, not to mention there were people who died due to the confrontation. This assault was a kind of culmination of the events that had unfolded throughout the previous weeks, starting on November 3rd. Rumors that Trump would refuse to hand over power to his successor started interest in a safe dollar, while the Washington event acted as a trigger – the demand for the US currency increased in many ways, but it turned out that it was the last shot.

Exchange Rates 22.01.2021 analysis

The following US events that happened after that were predictable. Initially, it was clear that congressmen would not have time to consider the impeachment process before Trump's term ends, and so, this fundamental factor has currently completely faded in the background. If the Senate votes for Trump's impeachment in February, it will only act as a preventive measure so that Trump does not run for office in 2024. Meanwhile, Biden's inauguration went smoothly and without incident. The 46th president took office and has already signed a dozen executive orders, many of which canceled the presidential decrees of his predecessor. In particular, he returned the United States to the WHO and the climate agreement.

In the context of the currency market, this means that interest in protective instruments will continue to decline, as the political situation in the United States returned to its usual course. We are talking about the medium-term period, since the market will return to hot topics in February, which may return interest to the dollar again. In particular, this is about congressmen's approval of the "American Rescue Plan" in the amount of $ 1.9 trillion, and most importantly, about the prospects for US and China's further relations.

However, if we talk about a short time period, it will be difficult for the US dollar to find a reliable support point for the development of a large-scale rally. In view of the EUR/USD pair, this means that buyers will be able not only to test the resistance level of 1.2200, but also move to the target 1.2330 (upper line of the Bollinger Bands on D1) in the near future. Moreover, the euro is now in a fairly favorable position: First, the political crisis in Italy has stopped. Both houses of parliament supported Giuseppe Conte, who managed to keep the government and prevent early elections in the country. Secondly, the euro passed the test of the Central Bank: ECB members kept the parameters of monetary policy unchanged during their meeting yesterday, and Lagarde's rhetoric was restrained and optimistic. And although there has been some pessimistic comments about the near-term prospects, the overall result of the January meeting was in favor of the Euro currency.

Today, PMIs will be released in key European countries. Most experts believe that these indicators will reflect a certain trend: the manufacturing sector will remain above (the indicators will be released in light with the previous month), while the service sector will clearly decline, being in the "red" zone. This is not surprising, since quarantine restrictions, which are only strengthening in Europe, primarily hit the service sector.

At the same time, January's preliminary data will be discussed today, so we can now make certain conclusions about the dynamics of macroeconomic indicators. It is worth recalling that the December ZEW indices came out much better this week than what was expected. The German business sentiment index surged to 61 points, against the forecast of 55 points; whereas, the pan-European index rose to 58 points, with a forecast growth of 54 points. If the PMIs follow the course of the ZEW indices, the euro will receive significant support.

Exchange Rates 22.01.2021 analysis

From a technical viewpoint, traders managed to break through the price level of 1.2150 (Tenkan-sen line on the daily time frame), but failed to reach the resistance level of 1.2200 (midline of the Bollinger Bands indicator, coinciding with the Kijun-sen line on the same timeframe). It is important for buyers to break through this resistance level to be able to further rise. The pair will be initially between the middle and upper lines of the Bollinger Bands indicator on D1, then the Ichimoku indicator will form a bullish signal "parade of lines", in which all the lines of the indicator will be under the price. In this case, the way towards the next main resistance level of 1.2330 (upper line of the Bollinger Bands) will be opened. Therefore, you can open longs a few points away from the current positions, that is, to the level of 1.2200, or to the level of 1.2330.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Irina Manzenko,
Analytical expert
InstaForex Group © 2007-2021
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