- EUR/USD has been on the back foot amid a coronavirus-led risk-off mood.
- Tentative signs of a flatter curve, falling US yields, and a calmer political mood could boost the pair.
- Friday’s four-hour chart is painting a mixed picture.
Another day, another record high in US COVID-19 cases and hospitalizations. The worrying picture is weighing on markets and the classic move would be a move toward the safe-haven US dollar. Will EUR/USD fall? Not so fast. There are three reasons to see an upward move at this juncture.
1) Tentative flattening of the curve
While some American hospitals are overwhelmed by covid cases, there is a glimmer of hope in Europe. Several countries have taken measures – from shuttering of activities to total lockdowns – and this is beginning to bear fruit.
Infections in the European Union are beginning to flatten, according to the population-adjusted seven-day rolling average:
A sustained drop in cases would imply lesser pressure on hospitals and an opportunity to enable additional activities in the lead up to Christmas. So far, German Finance Minister Jens Spahn remains cautious, and so is French President Emmanuel Macron.
Christine Lagarde, President of the European Central Bank, referred to an upcoming vaccine as “seeing the other side of a wide river” and also called for additional fiscal and monetary support to wade through the muddy waters. Nevertheless, there is room for some optimism.
2) US elections settling
President-elect Joe Biden continues building his team ahead of inauguration day on January 20. While President Donald Trump refuses to concede, additional Republicans are either congratulating him or calling the White House to share intelligence briefings with the incoming administration – an acknowledgment of the results.
The most recent counts put Arizona firmly in Biden’s column and a recount in Georgia is unlikely to change the picture. Trump has not spoken in public for over a week, but his tweets focus on Fox News – accusing them of not supporting him. Looking for who to blame is a sign that he is also coming to terms with his defeat.
The lower chances of a contested election may also contribute to a calmer mood in markets, limiting any gains by the dollar.
3) Yields coming down
US ten-year Treasury yields have been extending their climb down, and that may weigh on the dollar. Returns on the benchmark bonds nearly hit 1% on Monday, following Pfizer’s earth-shattering news of 90% efficacy in its vaccine candidate.
The rotation from bonds to stocks allowed the greenback to recover its early losses and sent EUR/USD tumbling down from the highs above 1.19 to below 1.18. The reverse move may be happening now.
Overall, EUR/USD has room to rise, despite America’s loss of control of the virus.
Eurozone Gross Domestic Product figures for the third quarter will likely confirm the initial read of 12.7% growth – coming after a collapse in the second quarter. In the US, the University of Michigan’s preliminary Consumer Sentiment Index is set to remain above 80, holding onto the recent gains but still staying below pre-pandemic levels.
EUR/USD Technical Analysis
Euro/dollar has recaptured the 50, 100 and 200 Simple Moving Averages on the four-hour chart, a bullish sign. On the other hand, momentum is marginal to the downside. All in all, the picture is mixed.
Resistance awaits at 1.1820, the high point on Thursday, followed by 1.1860, a swing high from early November. The next lines are 1.19 and 1.1920.
Support awaits at 1.1780, which was a swing high early in the week, followed by 1.1740, the weekly low. Further down, 1.17 and 1.1850 await EUR/USD.Get the 5 most predictable currency pairs