EUR/USD Forecast: Fears hit the greenback

EUR/USD Current price: 1.1369

• Coronavirus vaccine and drug cocktails seem to lose effectiveness against the new variant.
• European inflation soared to a record high of 4.9% YoY, according to preliminary estimates.
• EUR/USD is bullish in the near term, faces strong Fibonacci resistance at 1.1380.

Risk aversion took over financial markets to the detriment of the greenback. The EUR/USD pair broke higher and peaked at 1.1372 amid mounting concerns about the Omicron coronavirus variant. Moderna’s CEO said that he believes the vaccine effectiveness would probably drop with the new strain, although he said he’s not sure by how much. Also, and according to preliminary estimates,  antibody drugs’ cocktails seem to lose effectiveness against this new strain.

European countries continue to take desperate measures to contain the spread of the virus. Greece has made vaccination legally mandatory for those aged 60 and older, while borders’ closures are taking place globally. It’s unclear the extent of the effects on economic growth at the time being, yet this new situation is meant to delay the comeback.

Demand for safety pushed government bond yields to their lowest in almost a month, with the yield on the 10-year Treasury note down to 1.419%. Adding fuel to the fire, EU inflation surged to a record high of 4.9% YoY in November, according to preliminary estimates. The core reading printed at 2.6%, much higher than the previous 2%, piling pressure on the European Central Bank to start trimming facilities.

The US macroeconomic calendar includes the November Chicago Purchasing Managers’ Index and US Federal Reserve chief Jerome Powell’s testimony on the CARES Act before the Senate Banking Committee. The text has already been released, and it shows that Powell will say that factors pushing inflation upward are expected to linger “well into next year.”

EUR/USD short-term technical outlook

The EUR/USD pair trades near the mentioned high, a few pips below the 38.2% retracement of the November slump at 1.1378. The near term picture hints at further gains, particularly if the pair manages to break above the mentioned Fibonacci resistance level. The 4-hour chart shows that it is currently struggling around a bearish 100 SMA, while the 20 SMA maintains its bullish slope below the current level.  Technical indicators have reached overbought conditions, holding on to intraday gains and hinting at prevalent buying interest.

 Support levels: 1.1305 1.1260 1.1210

Resistance levels: 1.1380 1.1425 1.1470

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