EUR/USD: Vulnerable to potential “sell the fact” trade on US stimulus
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EUR/USD: Vulnerable to potential “sell the fact” trade on US stimulus

  • EUR/USD trades flat near 1.2040 after Friday’s bounce from 1.1952. 
  • Friday’s weak US payrolls data bolstered the case for US fiscal stimulus. 
  • Both stocks and EUR/USD could now witness sell-the-fact trade.

EUR/USD carved out a bullish candlestick pattern on Friday, signaling a reversal higher. However, the rally may remain elusive if the global stock markets witness a wave of profit-taking on well-flagged US fiscal stimulus, putting a bid under the anti-risk US dollar. 

Weak US data strengthened the case for US stimulus

The US Nonfarm Payrolls data released Friday showed the economy added just 49,000 jobs in January, missing expectations for 105,000 additions and bolstering the case for US fiscal stimulus. 

President Joe Biden said on Friday that the data warranted an aggressive fiscal response. US Treasury Secretary Janet Yellen said on Sunday that the White House’s proposed $1.9 trillion relief package should include stimulus cheques for workers earning $60,000 per year. 

Stimulus priced in

The dollar index, which tracks the greenback’s value against majors, fell from 94.20 to 89.21 and EUR/USD rise from 1.1602 to 1.2349 in the two months to early January on expectations for aggressive spending under Joe Biden’s Presidency. Stocks, too, have rallied sharply across the globe in hopes for stimulus and clocked fresh record highs on Friday. 

As such, with the US stimulus approaching, stocks could witness a sell the fact trade, helping the battered US dollar gain ground. Besides, the growing economic divergence between the US and the Eurozone favors dollar strength. While the US economic recovery may be slowing, the Eurozone economy is facing another quarterly contraction, courtesy of continued coronavirus-induced lockdown measures. The German Industrial Production for December scheduled for release at 07:00 GMT could influence the pair. 

Technical levels


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