EUR/USD retreats towards 1.1300 amid sluggish end of 2021

• EUR/USD stays pressured around intraday low after posting the biggest daily losses in two weeks.
• Sour sentiment, light calendar and year-end liquidity crunch tests momentum.
• ECB v/s Fed battle to keep bears hopeful in 2022.
• New Year’s Eve in multiple bourses restricts immediate moves.

EUR/USD pares daily losses around 1.1320, despite fading bounce off intraday low, during the early Friday morning in Europe. In doing so, the major currency pair remains inactive amid a lack of major data/events and mixed catalysts as traders brace for 2022.

Major Asia-Pacific markets are off while some in Europe will also cheer New Year’s Eve, contributing to the inactive day. That said, the recent consolidation in EUR/USD could be linked to the US dollar’s mixed performance and an absence of major bond traders due to Japan’s holiday.

Talking about risk catalysts, the South African covid variant, namely Omicron, as well as geopolitical headlines relating to Iran, China and Ukraine are the key to watch.

Reuters’ tally for the US seven-day average of new coronavirus cases refreshes record top for the second consecutive day with 290,000 latest figures. The same is the conditions with Europe, Australia and the UK while some of the Asian nations have also registered pick-up in covid infections. The same push Health Experts and World Health Organizations (WHO) to warn over year-end celebrations.

On the other hand, Iran’s space launch derails previous optimism concerning the denuclearization deal with the global leaders. On the same line were the dislikes of China and Hong Kong for the US push to release Hong Kong-based journalists. Furthermore, “US President Joe Biden and his Russian counterpart Vladimir Putin on Thursday warned each other that an escalation of tensions over Ukraine could rupture relations between the two countries, U.S. and Russian officials said,” per Reuters.

On Thursday, European Central Bank (ECB) governing council member and Dutch central bank head Klaas Knot joined ECB policymaker Robert Holzmann to highlight inflation fears and challenges to the ECB’s easy money policies. However, firmer US data and strong US inflation expectations favored EUR/USD sellers.

US inflation expectations, per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED), jumped to the highest levels since November 24. Further, the US Initial Jobless Claims eased to 198K versus 208K expected during the week ended on December 24. Further, Chicago Purchasing Managers’ Index rose past 62.0 forecast to 63.1 for December.

Amid these plays, the Wall Street benchmarks posted mild losses whereas the S&P 500 Futures decline 0.35% at the latest.

Although the market’s inaction is likely to continue for the rest of the day, comparatively more hawkish Fed and upbeat US fundamentals may favor EUR/USD bears during 2022.

Read: EUR/USD 2022 Forecast: Policymakers will continue to chase inflation and King Dollar will make the best out of it

Technical analysis

EUR/USD repeatedly fades bounce off the 100-SMA amid sluggish oscillators, namely the MACD and RSI, which in turn hints at another inactive daily performance by the pair as it approaches 2022. That said, a downside break of the 100-SMA level of 1.1300 will have another support to watch, namely a two-week-old ascending trend line near 1.1280.

Meanwhile, an upside clearance of the monthly horizontal hurdle around 1.1360 will need validation from the November 16 peak of 1.1385 to convince the EUR/USD bulls.