Daily Market Recap – EURUSD Unexpected behavior in the Dollar

The U.S. dollar had a choppy session Tuesday after Federal Reserve Chairman Jerome Powell said the risk of higher bets had increased and suggested removing the term “transitory” for inflation, while concerns about the new variant of the Omicron coronavirus kept demand for safe haven currencies alive.

It may seem unnatural not to see a surge in the bill after such comments, but the appearance of the variant changes the perspective of investors. It should be remembered that yesterday's Consumer Confidence and Chicago PMI figures came out lower than the market expected. Furthermore, it is only a matter of time before the new variant appears in the U.S.

Therefore, if the U.S. economy slows down with a new variant that raises fears of new restrictions and the Fed tightens its monetary policy, then the U.S. lead in the recovery could come to a halt.

It is not insignificant that Powell did not wait to know more about the danger of Omicron before talking about accelerating asset purchases. As a result, traders are very divided, and the dollar has not seen the rise that one might have expected.

Earlier, the Japanese yen and Swiss franc rose against the dollar after Moderna's CEO said that the coronavirus vaccines will likely be less effective against the Omicron variant than they have been against other variants.

Adding to the fears, drugmaker Regeneron Pharmaceuticals Inc. said Tuesday that its COVID-19 antibody treatment may be less effective against the Omicron variant.

The warnings reinforced the idea that the global economy may take longer than expected to recover to pre-pandemic levels. The yen and the Swiss franc are therefore benefiting from their safe haven status.

Prior to Omicron, the main driver of currency movements was how traders perceived the different speeds at which global central banks would end pandemic-era stimulus measures and raise interest rates in an effort to combat rising inflation without stifling growth.

The euro against the dollar is rebounding from its November 24 low of 1.1186 near support at 1.1168. However, the trend remains bearish below a descending oblique that connects the high points since early June and below the 34-period moving average.

 (Chart Source: Tradingview 12.02.2021)

For the short-term recovery to extend, the pair will need to break above initial resistance at 1.1383. A test of the oblique and the polarity line at 1.1500 would then be possible. Above these last two thresholds the trend would become neutral.

As long as the price remains below 1.1383, the risk is to see a relapse towards the support.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.