Daily Market Recap – EURUSD Euro returns to test key short-term support

The euro is under pressure despite the renewed risk appetite of market participants in recent sessions. The single currency is even the only major currency that is not a safe haven to underperform the dollar on a weekly basis.

The EURUSD appears to be weighed down in the short term by health uncertainties in Europe, with Germany tightening restrictions on unvaccinated people and France announcing a four-week closure on nightclubs. Forex traders fear that the tightening of health restrictions will continue on the old continent as the number of infections soars, jeopardizing the economic recovery.

The EURUSD is also being weighed down by lower expectations of a Bank of England  rate hike next week. The British pound is under pressure as traders favor the dollar as economists become less certain that the BoE will raise rates next week due to the emergence of the Omicron variant.

In addition to developments on health restrictions in Europe, EURUSD will also depend on Wednesday's JOLTS employment report and Friday's U.S. inflation numbers. Better-than-expected data would strengthen the prospects of an acceleration of the Fed's tapering, which would support the dollar and put more pressure on the EURUSD.

From a technical perspective, the EURUSD is returning to the bottom of its descending wedge and testing major short-term support at $1.1260 which had bounced off after Jerome Powell's change of tone on inflation last week. The market's reaction to this support will be decisive for the next few sessions.

A pullback below $1.1260 and a breakout from the Bollinger Bands of the 4-hour time unit would pave the way for a continuation of the decline to last month's low of around $1.1180.

 (Chart Source: Tradingview 07.12.2021)

If a rebound and an exit from the Bollinger Bands and bevel is achieved, the outlook for EUR/USD would become bullish again in the short term to the recent highs at $1.1378.

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.