Although the euro is still showing rather low activity, and the scale of its movements is extremely modest, it is still impossible to ignore its sharp decline, right before the US session opens. At the same time, the decline looks rather strange in many ways, since the formal reason for it was the decision of the German government to introduce a nationwide quarantine. And long before Christmas, not after. And this is despite the fact that vaccination against coronavirus seems to be gradually starting, which should, in theory, reduce the epidemiological situation. It is clear that the introduction of quarantine will severely hit both business and the economy as a whole. And not only the German economy, but Europe as a whole. Whatever one may say, but Germany is the economic center of all of Europe, and almost all countries are somehow connected with it. But all this looks strange for the simple reason that the German authorities announced this measure over the weekend, so the introduction of quarantine did not come as some kind of surprise. To all appearances, such a reaction is largely caused by the fact that the euro is still overbought, and it is long overdue for a correction, which is still not there.
Nevertheless, the euro won back all its losses. This happened when the US session opened. And here everything is completely logical and understandable, since the rate of decline in industrial production in the United States accelerated from -5.0% to -5.5%. They were expected to slow down from -5.3% to -5.0%. But even a revision of the previous data for the better did not change the fact that the recession in the industry is only getting worse. At the same time, it turns out to be significantly larger than everyone could imagine. And we are not talking about the fact that the recession in American industry has been going on for fifteen consecutive months. It began even before the coronavirus pandemic and has nothing to do with it. The global pandemic only intensified this negative trend, but its cause lies in a completely different plane. But Washington is still preoccupied with the pandemic and those who still settle in the White House. The second question seems to have already been finally resolved, since the electoral college voted for Joseph Biden. Although Donald Trump intends to challenge this decision in court. Nevertheless, no one says that the problems in the economy began long before the coronavirus pandemic. This means that no one intends to solve these problems. It is possible that Washington has no idea what to do with all this, so they are silent on this matter. But the problems don't go away. On the contrary, if they are not dealt with, they tend to only get worse.
Industrial Manufacturing (United States):
Preliminary data on business activity indices will be published around the world. And the forecasts for them are not so encouraging. For example, in Europe, the index of business activity in the manufacturing sector may fall from 53.8 points to 52.9 points. If we talk about the index of business activity in the service sector, then it should decrease from 41.7 points to 41.5 points. As a result of all this, the composite PMI is likely to decrease from 45.3 points to 45.0 points. The picture is rather sad.
Nevertheless, all this will be offset by the US business activity indices. In particular, the index of business activity in the service sector should decline from 58.4 points to 55.6 points. The manufacturing business activity index may decline from 56.7 points to 55.0 points. All this will lead to a decrease in the composite business activity index from 58.6 points to 57.0 points. Moreover, the negative for the dollar will be intensified by retail sales, the growth rate of which should slow down from 5.7% to 5.4%. So, in theory, the euro should somewhat strengthen its position.
Retail Sales (United States):
However, everything can happen in a completely different manner. More precisely, the market, most likely, will not even see these data, since everyone is focused on the upcoming Fed meeting. Moreover, after the European Central Bank significantly expanded its quantitative easing program, there are quite serious fears that the Fed will take a similar step. At the same time, the situation is aggravated by the fact that there are no serious forecasts regarding the scale of possible expansion of stimulus measures. In addition, no one expects the Fed to leave all the parameters of monetary policy unchanged. Simply put, whatever the US central bank decides to do will come as a complete surprise, and can simply blow up the market. Nevertheless, it is most likely that the Fed will go for even greater easing of monetary policy in the form of an expansion of the quantitative easing program.
The EURUSD pair continues to move around the local high of the medium-term upward trend of 1.2180, periodically slowing down and forming a stagnant pullback. The euro's overbought status still has a significant part in the market due to a long upward movement and the absence of a full-size correction.
The market dynamics has recently been at a low level, due to the fact that the quote follows a sideways movement.
If we proceed from the quote's current location, we can see that market participants feel pressure from the 1.2160/1.2180 area, where the volume of long positions was decreasing on a natural basis.
Considering the trading chart in general terms, the daily period, you can see a medium-term upward trend, where the quote is at its conditional peak.
We can assume that until the quote manages to surpass 1.2180, then the euro still has a chance for a full-size corrective move to the values 1.2100-1.2000 in the four-hour period. In case of an upward movement, the 1.2250/1.2300 coordinates will be considered after surpassing 1.2180.
From the point of view of complex indicator analysis, we see that the indicators of technical instruments on the 1-minute and 1-hour intervals signal a buy, but the signal is unstable.
