However, in the near term the bullish EUR/USD correction could extend further. Break above the 1.2500 mark would open the way to 1.2600 and then – to the 1.2900 resistance area. We expect the sharp decline with the targets far below the 1.2000 mark to resume from here.
The bullish EUR/USD scenario will be viable only if the US Fed maintains a neutral stance on the next week’s meeting. You should also note that the European banks will be paying back part of the LTRO loans next week. On the one hand, this is a sign of the banking sector’s health. On the other hand, the balance sheet reduction will only add pressure on the ECB to announce more stimulus in January.