EUR/USD bulls step in, but too little too late?

• EUR/USD corrects a steep decline in the New York sessions.
•  Bears seek a downside continuation below 1.12 the figure. 

EUR/USD has been pressured in a risk-off environment on Thursday. The pair is down by some 0.45% as it attempts to correct the supply that has arisen on the back of concerns of economic risks from measures to regulate the new coronavirus variant.

In its early stages, the coronavirus variant called Omicron is said to be 4.2 times more transmissible than the Delta version, according to research. The European Centre for Disease Prevention and Control has predicted that the Omicron variant could become the dominant variant in Europe within months. Seventy-nine cases of the new Omicron variant of Covid-19 have been reported in 15 European countries so far, according to the EU's European Centre for Disease Prevention and Control.

Germany's fourth wave of Covid is it's most severe so far, with another 388 deaths recorded in the past 24 hours. Omicron is causing renewed restrictions on public life and Germany's national and regional leaders have agreed to bar unvaccinated people from much of public life in a bid to fend off the fourth wave of Covid-19. 

Meanwhile, as for data today, Initial Jobless Claims in the US fell by 43,000 to 184,000 during the week ended Dec. 4, the lowest level since 1969. Analysts in a survey compiled by Bloomberg had expected claims to come in at 220,000.

Looking ahead, the Consumer Price Index in the US is forecast to grow at an annualized rate of 6.9% in November, up from a 6.2% recorded in the previous month, according to data compiled by Trading Economics.  The November cycle high in the US dollar index, DXY, near 96.938 remains in sight as the 2-year rate differentials continue to move in the dollar’s favour. The CPi data could add further upside pressure in the yields to support the greenback in the coming days. 

ECB in focus

Meanwhile, next week's European Central Bank meeting is going to be critical, especially with the emergence of the Omicron variant is putting more downward pressure on European economies. Traders note that inflation is on the rise,  although the re-entering of carry trades amid a recovery in risk sentiment has been weighing on the euro.

''Inflation has picked up quicker than anticipated while the growth outlook is murky, which we expect will result in a patient approach to monetary policy in 2022, but with the optionality to recalibrate in 2023,'' analysts at Danske Bank said. ''We expect the first staff projection for 2024 inflation to land around 1.8%. This combined with real rates hovering around historic lows, allows room for a recalibration.''

EUR/USD may prove sensitive to any hawkish surprise, whether that be on the timing of unwinding asset purchases or on staff projections. There is room for the pair to catch up with the unfavourable widening of USD-EUR short-term rates.

EUR/USD technical analysis

The price is attempting to correct but the downside is dominant and would be expected to overpower resulting in a bearish continuation below the counter trendline and 1.13 the figure's resistance.