Bearish View
Sell the EUR/USD and set a take-profit at 1.1250.
Add a stop-loss at 1.1400.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 1.1330 and a take-profit at 1.1400.
Add a stop-loss at 1.1250.
The EUR/USD pair is in a tight range in a low-volume trading environment. It is trading at 1.1310, which is a few points below last week’s high of 1.1342.
Low Volume Environment
Last week, we experienced a relatively low-volume environment as most investors took their Christmas holiday breaks. This situation will be worse this week as investors wait for the upcoming year.
The biggest driver of the market these days is the Omicron variant. Recent data showed that the number of Omicron cases in the US and Europe has jumped sharply in the past few weeks. In the US, Omicron cases represent more than 73% of all Covid cases in the country. The same trend is happening in most European countries.
At the same time, it is emerging that the new variant is relatively mild than the previous variants. Indeed, a closer look at data shows that the variant is relatively mild and the number of deaths has dropped substantially in the past few weeks.
Therefore, there is a likelihood that the impact of the variant to the economy will be significantly low in the coming weeks. Besides, more countries will not have the need for lockdowns.
As such, the Federal Reserve and the European Central Bank (ECB) are expected to continue unwinding their monetary policy conditions in the coming year. The Fed has already hinted that it will end the quantitative easing (QE) program in March next year. It will then start a rate hike cycle as it has hinted to implement about 3 hikes next year.
The ECB, on the other hand, has already started unwinding its quantitative easing program. It will end it in the first half of the year and then stay patient before hiking rates. Today, there will be no major economic data from the US and the European Union.
EUR/USD Forecast
The four-hour chart shows that the EUR/USD pair has formed a horizontal channel in the past few weeks. The pair remains between the key support and resistance levels at 1.1235 and 1.1360. This price is about 7% below the highest level this year.
A closer look shows that it has formed a small double-top pattern at about 1.1343. The chin of this pattern is at 1.1290. It has moved to the 25-day and 50-day moving averages while the RSI is tilting lower.
Therefore, the pair will likely remain in a tight range today as the low-volume environment continues. If this happens, the next key level to watch will be at 1.1280.
