Euro jumps on corona fears

The euro has reversed directions on Friday and has posted considerable gains. EUR/USD is trading at 1.1289 in Europe, up 0.75%. The euro is benefitting from fears of a Covid variant that has spread across South Africa and is was detected in Hong Kong today.

Despite today’s positive performance, the technical outlook for the euro remains bearish. It has been a rough November for the euro, which is down 2.44% this month. Europe is in the midst of a fourth wave of Covid, and the massive spike in cases in Germany and elsewhere could derail the EU’s tenuous recovery. Things were looking rosy until now, with the EU forecasting a strong 5% growth rate for 2021, but that projection is in jeopardy as lockdowns are looking more likely around the Christmas shopping season.

The pessimistic outlook due to the South African Covid variant has led to the markets reducing the likelihood of a rate hike next year. The markets still remain more hawkish than the ECB, as Governor Christine Lagarde has ruled out a rate hike before 2022.

FOMC likely to accelerate taper

The Federal Reserve is expected to accelerate the tapering of its pandemic bond purchase programme. The FOMC minutes showed that policy makers are concerned about inflation, and went so far as to say that they would consider raising rates sooner than “currently anticipated”. Goldman Sachs said in a note on Thursday that it expects to Fed to double its taper trim from USD 15 billion to USD 30 billion each month, starting in January. This means that the programme will be wound up by March instead of June. An earlier end to the bond purchase scheme means that the Fed can look at raising rates sooner, which is bullish for the US dollar.

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 EUR/USD Technical

• 1.1201 has strengthened in support as EUR/USD has climbed higher. This is followed by support at 1.1118
• There is resistance at 1.1415 and 1.1546

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