EUR/USD slips to a two-week low as the US dollar bounces back

Written by: Crispus Nyaga
January 11, 2021
  • The EUR/USD dropped to a two-week low due to the stronger dollar.
  • The dollar index rose by more than 0.40% today.
  • The pair also dropped because of the rising number of Covid cases in Europe.

The EUR/USD slipped to its lowest level in two weeks in part due to the stronger US dollar and the rising number of coronavirus cases. It is trading at 1.2150, which is 0.56% below its close on Friday. It has also dropped for the past three consecutive days.

EUR/USD four-hour chart

Stronger US dollar

One of the main themes today, except the cryptocurrency meltdown, is the stronger US dollar. The dollar index has risen by more than 0.45%. Individually, the currency has risen by 0.75% against the sterling, 0.35% against the Japanese yen, 0.70% against the Swiss franc, and 1.15% against the Canadian dollar.

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There are several primary reasons why the dollar has risen. First, investors are gearing for more stimulus in the United States after the disappointing nonfarm payrolls last week. The data showed that the economy lost more than 140,000 jobs.

The stimulus, which Joe Biden has pledged, will be negative for the dollar for some time. But it will also be a catalyst for the currency because it will lead to a more robust US economy. This, in turn, will force the Federal Reserve to raise interest rates faster than earlier expected.

The US dollar is also rising because of the increasing coronavirus cases as more countries issue lockdowns. The newest country to do that is China, which has put restrictions in Hebei, a large province with more than 11 million people.

The EUR/USD is also falling because of the situation in Europe, where the virus situation is getting worse. For example, the United Kingdom confirmed more than 54,000 cases yesterday, bringing the total to more than 3.10 million. Therefore, there are concerns that the situation will keep getting worse even as the countries administer the vaccines.

Meanwhile, the pair is falling because of the political situation in the United States where impeachment proceedings against Donald Trump will start this week. He is being accused of supporting rioters who stormed the Capital last week.

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EUR/USD technical analysis

EUR/USD technical chart

On the four-hour chart, the EUR/USD pair has continued to fall after forming a bearish divergence pattern last week. It also moved below the ascending red trendline. Today, the Relative Strength Index (RSI), Stochastic Oscillator, and MACD have moved to the oversold level. 

Therefore, while the bearish trend is likely to continue, there is a likelihood that the pair will have a small bounce to 1.2200 in the near term.