Move below 1.0463 would mark a significant downturn – Credit Suisse

EUR/USD Needs to Break Above 1.0806 to Reassert Upward Bias

Eurozone economies have shown resilience in economic performance despite the ongoing wave of Covid-19 infections. The German government upgraded its growth forecast, projecting a 3% GDP increase for 2021. In November last year, the projections were 1.8%. Furthermore, the European Central Bank (ECB) President, Christine Lagarde, has hinted that the bank may review its policy stance in March due to economic uncertainties caused by the pandemic. ECB policymakers may reveal more on the future outlook for policy and the euro in the short-to-medium term as the February 21-22 meetings are around the corner.

But what does the technical analysis reveal? Credit Suisse report indicates that EUR/USD needs to maintain a break above 1.0806 to ease the pressure off the 1.0483/63 support level. As per the report, “EUR/USD continues to hold above key support from the 38.2% retracement of the 2022/2023 rally and early January YTD low at 1.0483/63, and our bias remains for this to hold for a broad range.”

It is imperative for the EUR/USD to rise above 1.0806 to reassert an upward bias. Doing so could lead to strength back to the 50% retracement of the 2021/2022 fall at 1.0944 and a retest of the 1.1035 YTD high. The report warns that a dip below 1.0463 could mark a ‘head and shoulders’ top and potentially a more significant downturn. However, this would require the 200-DMA at 1.0326 to be removed to suggest support at 1.0223/1.0198.

For the EUR/USD to continue the bullish trend, there needs to be a strategic push towards a strong economic recovery, as well as policies that bolster economic growth. In the current scenario, the focus is on vaccinations and containing the pandemic. Germany stands out as an economy that has remained resilient despite the pandemic. It is the largest economy in the Eurozone and has shown signs of growth in its mobility index, which is a critical economic indicator. Furthermore, the introduction of government aid packages has supported the German economy and helped it recover from the pandemic. The latest indicators reveal that industrial production rebounded by 0.9% YoY in November 2020, an indication that things are looking up.

The ECB has been making several efforts to support the European economies hit hard by Covid-19 pandemic. The ECB has implemented several measures, including quantitative easing and targeted longer-term refinancing operations. The bank has also set up debt purchasing programs and asset purchases to stabilize markets.

The ECB has also restructured its policies to help carter for the needs of the economy efficiently. Its Pandemic Emergency Purchase Program (PEPP) has been extended, increasing the asset purchasing limit from €1.35tn to €1.85tn. The relaxation of guidelines surrounding liquidity also allowed banks to borrow more easily, increasing the amount of capital they can lend to support struggling economies. Furthermore, the ECB has rolled out its updated policy stance, where the bank will allow for an overshoot of the 2% inflation target to ensure the economy recovers fully.

The euro continues to be regarded as a stable currency, with a current exchange rate of $1.2066 against the US Dollar. The currency’s strength is expected to continue due to its stability as a global reserve currency, as well as the ECB’s due diligence in implementing effective policies that support business growth and investment.

In conclusion, the EUR/USD needs to break above 1.0806 to reassert an upward bias, as per the Credit Suisse report. The EUR/USD’s bullish trend depends on the strategic push towards economic recovery, effective policies that boost economic growth, and efforts to contain the pandemic. ECB policies aimed at supporting the economies hit hard by the pandemic have played a crucial role in maintaining economic stability. These measures have instilled investor confidence and helped sustain the stability of the euro, which is expected to continue as a global reserve currency.


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