- EUR/USD is stuck in a range as markets lack a catalyst.
- Holiday thin markets leave forex subdued as investors keep a watchful eye over covid risks.
EUR/USD is flat on the session stuck in a 1.1273 and 1.1286 tight range as the markets move into holiday thin conditions. The central banks are done for the year as far as schedule meetings go, although Fedspeak could be a compounding factor for the greenback. The coronavirus threat also lingers over financial markets and remains a risk for the remaining days of this year and the starting weeks of next week.
With a quick glance back to the central bank meetings that have recently passed, EUR/USD was demonstrating its vulnerability to positioning adjustments. Despite the DOT plot paining a more hawkish than expected three rate rises next year, the greenback fell following the outcome of the event. This leaves the outlook for the greenback a little less certain when it comes to the divergence between the Federal Reserve and the European Central Bank.
Analysts at Rabobank explained that they expect that USD upside has further to run in the early months of 2022 as the Fed winds down its bond-buying programme and moves closer to its first-rate rise of the cycle.
''Consequently, we have revised down our 6-month EUR/USD forecast to 1.10 from 1.12,'' the analysts argued. ''That said, with a lot of good news already in the price, we are concerned that the momentum behind the Greenback’s rally may run out of steam in the latter part of next year and see scope for the USD to have given back a little ground vs. the EUR on a 12-month horizon.''
Covid sends nations into new restrictions
As per the coronavirus, nations in Europe are increasing restrictions. Italy’s government may be requiring inoculated people as well as the unvaccinated to take Covid tests to access large events, according to people familiar with the matter. Spain will convene an online emergency meeting on Wednesday to analyze the evolution of the pandemic and discuss adopting new measures. The Dutch have already returned to a strict lockdown on Sunday. In the UK, while the PM Boris Johnson has refrained from additional restrictions, for now, many people are already now staying home, so the country has entered what some call a “stealth lockdown.” With so many people now staying home, the country has entered what some call a “stealth lockdown” that’s left retail, hospitality and travel reeling.
