EUR/USD in consolidation mode just under 1.1300 as volumes decline pre-year’s end

• EUR/USD has been moving sideways in thin ranges just under 1.1300 and close to its 21DMA.
• Volumes are thinning ahead of Christmas/year-end holidays and are unlikely to pick up until January.
• Analysts do not expect EUR/USD to break out of 1.1250-1.1350ish ranges in the coming sessions.

Despite a broader turn-around in risk appetite on Tuesday, as US and European equities make good progress in recouping some of Monday’s risk-off fuelled losses, EUR/USD is trading in a highly subdued fashion. The pair seems content to amble within tight ranges on either side of its 21-day moving average around 1.1285, which seems to be acting as a magnet. At current levels just under 1.1290, the pair is trading with modest gains of about 0.1% on the day, though has been unable on Tuesday to test Monday’s 1.13037 highs, as the 1.1300 level acts as resistance.

Volumes, already thinner than usual this month, have been declining since last week’s central bank bonanza that included Fed and ECB policy announcements. This trend is likely to continue as Christmas/New Year holidays approach and is only set to rebound at the start of January. That suggests rangebound conditions are set to dominate in FX markets over the coming sessions, meaning that a EUR/USD break out of its already estabilished 1.1230-1.1360ish December ranges seems highly unlikely.

In terms of the fundamentals driving the pair, ING doubts that “we will see any idiosyncratic rally (for EUR) as the Eurozone appears more likely than many other regions (like the US) to tighten containment measures”. Indeed, on Sunday, the Netherlands announced a surprise lockdown and other European countries look likely to follow suit after Christmas. Many nations (including Germany) have already unveiled new restrictions on the ability of the unvaccinated to participate in public life. As a result, “the EUR is on average the least likely to benefit from any dollar weakness around the end of December”, ING states, noting that the dollar tends to underperform at the year-end, which may be “linked to US corporates moving money offshore before the end of the year for tax reasons”. The bank expects EUR/USD to consolidate around the 1.1300 level into the new year.