EUR/USD wavers as the ECB warns of a double-dip EU recession

EUR/USD wavers as the ECB warns of a double-dip EU recession
Written by:
Crispus Nyaga
November 27, 2020
  • The EUR/USD pair is wavering today as investors react to the latest ECB minutes.
  • In the minutes, the ECB warned that the bloc was facing a high likelihood of a double-dip recession.
  • The European Commission will release consumer and business confidence data today.

The EUR/USD is in a tight range as traders reflect on the high likelihood of a double-dip recession in the European Union. The pair is trading at 1.1918, which is its highest level since September 1.

EUR/USD
EUR/USD in a tight range

Double-dip recession

The European Central Bank (ECB) released minutes of the monetary policy meeting held two weeks ago. The minutes showed that the bank was considering adding more stimulus to support the bloc as it goes through its worst phase in decades.

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In the minutes, officials were concerned that the bloc’s economy would be bumpier than initially expected because of the ongoing wave of the virus. In response to the surging cases, many countries, including France, Germany, and Spain, have introduced some limits, including business closures.

The ECB has already done a lot to stimulate the economy. It has reduced interest rates to historic lows and launched an unprecedented 1.35 trillion-euro quantitative easing plan. Further, the bank has provided enough liquidity to help banks accelerate their lending, especially to small businesses. It is also buying bonds from large companies to help keep them afloat.

However, the minutes showed that some economists at the ECB are worried about the impact of additional stimulus. They cited possible non-linearities, side-effects, and diminishing returns as risks to more stimulus. They said:

“With markets having stabilised since the introduction of the pandemic-related monetary policy measures in March, it was noted that additional asset purchases might not have the same impact on financial conditions and real economic activity as they had earlier in the year.”

Later today, the EUR/USD will react to additional consumer and business confidence data from the Eurozone. Economists polled by Reuters expect the data to show that industrial sentiment dropped to -10.5 in November from -9.6 in the previous month.

Similarly, they see services sentiment falling from -11.8 to -15.5 mostly because of the new wave of the virus. For consumers, they expect their confidence will fall to -17.5.

EUR/USD technical outlook

EUR/USD
EUR/USD technical chart

On the four-hour chart, we see that the EUR/USD price has been on an upward trend this month. The pair has jumped from a low of 1.1600 to a high of 1.1940. In the past few weeks, it has formed an ascending channel and is now close to the upper side. The price is also slightly below the upper side of the 20-day Donchian channel.

Therefore, I predict that the pair will continue rising as bulls aim for the upper side of the channel at 1.1940. Do you agree with this thesis?  If you do, you can invest in it with one of the leading forex spread betting brokers.