The euro strengthened its upward movement on Wednesday, implying recovery by the end of the year and a possible trend reversal in the new year. Despite the mixed background provided by the single currency, the EUR/USD pair has no chance for reversal. Both the fundamental and the technical picture confirm the opposite, i.e. the euro's decline, which should be resumed at the beginning of the next year.
The EUR/USD pair did not move beyond the firm sideways trend and is unlikely to exit it over the Christmas holidays. The observed plus is mainly due to the traditional weakening of the US currency at the end of the year. The euro as an independent unit has no reason for consolidating in the positive territory.
The ECB still insists that inflation is temporary. This fact is a sharp contrast to the Fed, which is reinforcing a hawkish view. The EU lags the growing rate hike, which means that demand for its bonds and euro purchases should gradually be reduced.
The only euro's advantage, apart from the seasonal weakness of the US dollar, is traders' desire to take profits on short positions in the single currency. Over the year, the EUR/USD pair has lost 8% of its value.
The current movement is not likely to be considered directed, possible to continue in the future. It is rather a temporary balance of forces and shifts in positions. The changes will occur as major players with new trading ideas return to the market at the beginning of the year.
After a pause, or consolidation, the euro will inevitably fall towards 1.1000, following the sideways trend. Many analysts include this area in their forecasts as the target of decline.
Rabobank specialists expect the US dollar to rise in the first months of the new year, which means that the euro will decrease. Economists have revised their semi-annual estimate for the EUR/USD pair to 1.1000, while previously they expected the quotes' movement in the range of 1.1200.
However, some economists are more pessimistic about the EUR/USD pair. In this case, the forecast is based on the decline to the multi-year lows, closer to 1.0700-1.0500.
Meanwhile, Rabobank representatives are not confident in the euro's long-term decline. After falling to 1,1000 and, probably, lower, the euro should rebound to 1,1200 again.
This issue concerns positioning of the US dollar. The price contains a lot of positive aspects. However, there are concerns that the US currency rally may stop at some point. It is unlikely in the first half of the year, but in the second half of the year it is quite possible.
As for the current dynamics of the euro, on Thursday a slight correction from yesterday's growth is observed in the first half of trading. An update of the weekly high at 1.1350 is possible during the US session. The market is thin, unexpected price fluctuations can occur in either direction.