EUR/USD: dollar continues its troubling path, not abandoning attempts to turn away from it

At the beginning of this week, it would seem that a long-awaited correction took place in the overheated stock markets. The emergence of a new mutation COVID-19 in Britain has triggered a wave of sales of risky assets. This allowed the defensive greenback to reach ten-day highs around 90.9 points.

However, by the end of Monday, the key stock indexes brushed aside fears and were able to win back most of the losses at the end of the day.

As for the greenback, after a confident start, it was forced to almost completely abandon the previously received profit.

The statement of representatives of the European Medicines Agency (EMA) helped calm market participants. The new COVID-19 mutation is highly contagious, they said, but there is no evidence that it is vaccine resistant.

Meanwhile, politicians in Washington have finally agreed on a $900 billion stimulus package.

This event neither caused a rally in shares, nor did it lead to another greenback selloff, since, apparently, it was already taken into account in the quotes.

The dollar was trading higher again on Tuesday, near 90.4 points, but remains below the peak levels reached on Monday.

"The recent breakthrough of the USD index below 90 points supports our view that the weakness of the US currency may continue into the next year. However, in the next two to four weeks, the dollar sale may slow down or even be replaced by an upward correction," said Bank of America strategists.

It is assumed that in the near future the market will be influenced by traditional financial flows for the end of the year.

2020 was marked by a weak dollar and a strong US stock market. The former fell to its lows in two and a half years, while the latter regularly updated record highs. Balancing investment portfolios at the end of the year could lead to profit-taking in the US stock market, which will support the greenback.

According to experts, in the coming weeks, statements that can slow the spread of vaccines against COVID-19 may worsen the risk sentiment. They include reports of potential side effects of vaccines and logistical problems.

"At the moment and until the end of the year, when the positive and negative factors are quite comparable and are likely to have been taken into account in the price, it is the positioning and activity at the end of the year that will contribute to the weakening of the downward momentum in the USD, which may also limit the performance of the euro," Citigroup analysts said.

"The single currency is holding up very well despite a broad strengthening of the dollar, stricter measures to combat the coronavirus and closing borders in Europe," ING analysts said.

"Any progress in a post-Brexit trade deal would of course be welcome, since the EU medicines regulator approved the use of Pfizer's vaccine yesterday. However, it is too early to rule out a correction of the EUR/USD pair towards the 1.2015 area in the thin December markets, as well as to expect that it will reach new highs. Therefore, we may well see trading in the range between 1.2130 and 1.2270," they added.