• EUR/USD has rebounded from its 21DMA at 1.1300 for a second successive day, but remains within recent ranges pre-year end.
  • On the year, the pair looks on course to post a 7.0% decline, largely due to Fed/ECB policy divergence.

On the final trading day of the year, a day marred by low liquidity/volumes given market closures across Europe and other parts of the world, EUR/USD has continued to find support at its 21-day moving average. The pair rebounded from a test of the 1.1300 level for a second session running and has, despite the recent closure of the few European markets that had actually been open on New Year’s Eve, is rebounding towards 1.1350. The short-term bulls won’t be getting too excited just yet given that the pair continues to trade within recent ranges and below the 1.1360-80ish monthly highs that have acted as a ceiling over the past few weeks.

EUR/USD is likely to remain subdued within recent ranges for the rest of what will be a very quiet session and looks on course to close out the month ever so slightly in the green. On the year, the pair looks on course to post a 7.0% decline. A blistering US economic and labour market recovery driven by a combination of massive fiscal and monetary stimulus has pushed inflation in the US to four-decade highs and triggered a hawkish pivot from the Fed. While the Eurozone recovery has also been strong and inflationary pressures there are also elevated, the ECB’s hawkish pivot has been much less aggressive (they will taper the pace of QE purchases in 2022, but have not yet set an end date). This has been a key factor weighing on the pair this year.

Looking at EUR/USD from a technical perspective; some technicians might argue that the pair has formed an ascending triangle in December, with gains capped in the upper 1.1300s, whilst the pair posted ever higher lows throughout the month. That suggests a bullish breakout could be in the offing, though this may cut against the fundamentals. Many FX strategists expect dollar strength to persist in Q1 2022 as the Fed winds down its QE buying to zero and perhaps even kicks off its hiking cycle. The market’s reaction to what will in all likelihood be a very strong US labour market and ISM PMI survey data next week will be a good guage of the market’s appetite to continue to chase the dollar higher.

This article was originally published by Fxstreet.com.Read the original article here.