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  • EUR/USD just about managed to squeeze out a fresh year-to-date high above at 1.2275 before dropping back from highs.
  • Amid the broadly weaker US dollar, the pair still trades with solid on the week gains.

EUR/USD managed to hit fresh yearly highs at 1.2275 early in the US session, just about surpassing the previous annual high set on 17 December at 1.2273. The pair has since pulled back to trade closer to the 1.2250 mark but remains relatively well elevated on the day with gains of just under 40 pips or close to 0.3%.

USD weakness has been the main factor driving EUR/USD higher this week; the Dollar Index is currently flirting with the 90.00 level and a convincing break below this and beyond the 89.70ish annual low could see EUR/USD push on towards 1.2300, which seems the more likely next round number for the pair to hit as long as risk appetite remains elevated (compared to the likelihood of a pullback to 1.2200).

US stimulus and the coming Georgia elections

The theme of US fiscal stimulus has been dominating the headlines on Tuesday; in terms of the latest update, Senate Majority Leader Mitch McConnel (a Republican) rejected a request from the Democrats to pass a bill that would increase the direct payments being made from the government to each American by $1400, taking the total payment to $2000, by unanimous consent. That means the bill will be voted on in the traditional manner, and the timing of when this vote will occur is as of yet unclear.

But the Senate Republicans face increasing pressure to deliver this juiced up stimulus payment as the 5 January Georgia run-off election fast approaches. At the moment, the Republicans are trailing the Democrats in both of the seats that are up for grabs; if the Democrats do end up winning both seats, they will gain a majority in the Senate (50 seats plus the vote of Vice President-elect Kamala Harris) to go alongside the majority they already hold in the House of Representatives. Full control of Congress for the Democrats would likely mean trillions in additional stimulus over the course of 2021 and beyond.

Whether that would be a EUR/USD positive or negative remains to be seen; would more fiscal stimulus (likely coupled with increased Fed bond-buying) equal faster US and global economic growth (probably EUR/USD positive)? Could higher stimulus translate to higher inflation and a Fed that needs to start tightening policy sooner than expected (EUR/USD negative)?

Returning to the more immediate future; if Congress does surprise markets bypassing the juiced-up stimulus bill then that is likely to be a risk appetite positive (and safe-haven USD negative).