EUR/USD: Dollar to resume its gains until the Fed has a change of heart

EUR/USD has been able to stabilize as the US dollar takes a breather. However, the recent retreat of the greenback looks only temporary – a dead-cat bounce in EUR/USD that could end in a fresh downfall, Yohay Elam, an Analyst at FXStreet, reports.

Key quotes

“Officials at the Fed are denying the need to taper bond buys in 2021. However, they are contemplating printing fewer dollars – and not mentioning adding new ones. Moreover, the Fed seems to tolerate the increase in long-term interest rates as reflected by higher Treasury yields – the key upside dollar driver.” 

“Coronavirus continues raging on both sides of the Atlantic, albeit at a marginally slower pace in Germany. The full impact of the festive season – when families met – is still to be seen. The new covid variants have been blamed for a quicker spread. The pressure is mounting on European governments to increase vaccinations.”

“EUR/USD has been holding above critical support at 1.2125, which is now a double-bottom after hitting that level on Monday. While holding onto that level is a bullish sign, bears are gaining ground. The pair is struggling to trade above the 200 Simple Moving Average on the 4-hour chart and momentum remains to the downside. Moreover, the Relative Strength Index is above 30 – thus outside oversold conditions.” 

“Below 1.2125, the next cushions are 1.21, 1.2075, 1.2060 and 1.2040 – all were stepping stones on the way up in December. Some resistance awaits at the daily high of 1.2175, followed by 1.2205, which was a cushion in late December.”