FX.co ★ EUR/USD review on December 21

EURUSD, H4

What is happening?

It would seem that the euro should, according to the "foundation," fall under the pressure of the dollar. Since the Fed is clearly in the direction of tightening policy, yields on U.S. government bonds will grow. After all, the Fed will actively reduce new purchases and the U.S. Treasury needs to raise funds. The U.S. government debt limit has just been raised to $31.4 trillion and common sense tells us that the government debt limit was not raised in order to stop borrowing.

At the same time, the ECB is trying in every possible way to delay the tightening of its monetary policy because some countries in the euro area, particularly the ones that have suffered the most from the pandemic, are still lagging behind. This suggests that the economy is still not in its best shape.

In short, according to the foundation, the euro should be falling. However, it is not.

The current trading range remains at 1.1230 - 1.1350

The euro pushed off the bottom of the range and dangles in the middle, being of no interest to either speculative buyers or sellers here.

It is possible that the issue of continuing the movement will be resolved only in 2022.

Viewpoints:

First, the euro is objectively quite cheap (1.1250-1.1300), quite low relative to long-term averages around 1.1700-1.1800. Recall that a few years ago, the typical price for the euro was 1.2000 and higher.

Second, the tensions between the largest and strongest competing countries, the United States and China, have not yet subsided. China is undoubtedly concerned about the possibility of the U.S. exerting pressure on China through control over the U.S. dollar. This makes the euro a convenient currency to mitigate these risks. Perhaps this is supporting the euro.

What do we do?

Sell from the top of the 1.1350 area, buy from the bottom of 1.1230, but after exiting the range, we turn over.