EUR resistance before ECB.

The strength of EUR is determined not only by the weakness of USD, but also by traditional political and economical stability of the European Union. Low unemployment, strong wage growth and consumption, sustainable manufacturing production and export together with easy access to financial credit market at accommodative low interest rates, makes Eurozone very attractive for foreign investors from all over the world, including Asian and Middle East rich regions. These capital flows create an additional demand for EUR not only versus the USD, but also supporting cross rates like EUR/JPY, EUR/CHF, EUR/NZD, etc.

This past week, Eurozone positive economical reports were released: November Trade Balance; German, Italian and Eurozone CPI; EU current account. EUR/USD, as the most heavy trading volume currency pair, gained 0.19%, testing 3-year high rates on past Wednesday. The pair closed the third trading week in 2018 above significant technical and psychological level of 1.2220, showing a potential trend direction for whole year ahead.

Such a comparatively slow appreciation of the currency versus the greenback, was related to the upcoming important political decision in Germany, the biggest economy in Eurozone. This Sunday vote will determine the fate of the government, which still has not been created after October Parliament elections. In case if Social Democrats will approve Grand Coalition with Angela Merkel government, EUR/USD could continue bullish trend. But if the politicians will fail to finalize negotiations, there could be a negative impact for the pair, creating additional uncertainty for upcoming months.

Next week’s economic calendar is packed with important reports and events. Main focus is ZEW survey and IFO report, but traders and investors will wait for European Central Bank interest rate decision on Thursday, followed by ECB President Mario Draghi press-conference. On one side, the market players noticed a tweak from the regulator about possible tightening decision in “early 2018”, much earlier than was widely expected previously. On the other side, there could be a concern, expressed by ECB officials, about rapid EUR appreciation since the last meeting. Export-oriented economies like Germany might have additional competition pressure because of currency gaining strength.