question mark on chalk board

As we draw close to the end of the year, it’s already prudent to look ahead to 2022. Even if we aren’t looking at entering new long-term plays, thinking about the direction now can often provide more clarity when it comes to sitting back down in front of the screens in January. Today, we want to run through the picture for EUR/USD for our FX readers.

Starting with assumptions

Before we jump into the technicals, we like to base our views with a bias towards fundamentals as well. Over the course of this year, EUR/USD has moved lower, recently breaking fresh year to date lows at 1.1230. This has been due to a strong USD, with the US Fed tapering off assets purchases and high inflation meaning they could quicken the pace even further. It’s also seen safe haven flows move into it from concern around Omicron. For next year though, the USD is already strong, and so might struggle to make further gains.

For EUR, the Eurozone has struggled. The ECB are likely needing to continue to provide stimulus next year, but after many years of underperformance, there is a fair chance of the Eurozone recovering next year if Covid pressures fade.

From this overall angle, our fundamental view for next year would be to note a lack of a large move, and would expect the pair to be constrained in a fairly tight range. This is backed up from the long-term technical picture, shown below. On the monthly charts, you can see the convergence of both the support and resistance. This would support a view of a range bound 2022 in the 1.10-1.20 region.

Source: IG

Shorter term drivers

On the daily candles, the downtrend remains in tact. Despite a modest bounceback in MACD, correlating with EUR/USD holding ground for the past couple of weeks, it seems like momentum is fading. This can be seen with the MACD (blue) stalling, with it potentially turning lower to break below the signal line (red). If it does, this would support another leg lower, possible targeting 1.10 over the next month.

Source: IG

Watch out for the Fed

For those trading on an intraday basis, we note the risks tonight around the US Fed. We see good resistance on the upside with the 20 DMA (black) and 100 DMA (red) both capping potential USD weakness before it can reach 1.1300. A break above this would need to hold above 1.1320 and 1.1350 in order to break out of the trend lower.

On the low side, the YTD low of 1.1230 is the real target, with a move below this opening up further downside.

Source: IG

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