FX.co ★ Global optimism is pushing the EUR / USD pair higher reaching weekly peaks around 1.1900

Global optimism is pushing the EUR / USD pair higher reaching weekly peaks around 1.1900


Greenback continues to suffer losses for the fifth consecutive trading session. News about successful trials of the COVID-19 vaccine contributes to the decline of the US dollar which is also under pressure from concerns about the recovery of the US economy, as well as expectations that the Federal Reserve will be forced to ease monetary policy to compensate for the inability of the US authorities to adopt another package of fiscal stimulus.

According to the President of the Federal Reserve of Atlanta, Raphael Bostic, compared with the strong recovery that was observed in the summer, the US statistical data in the fourth quarter may be weak.

"We will be closely monitoring the incoming data to see if the recent weakening of retail sales growth in the country will lead to something more serious," he said.

Fed Chairman Jerome Powell, in turn, noted that the increase in the incidence of coronavirus in the US will pose a serious risk to the national economy in the coming months. He believes that it is too early to say whether the appearance of the COVID-19 vaccine will change the forecasts.

The world's largest economy is expected to contract by 3.6% this year.

"The high incidence of coronavirus in the US is a source of great concern about the country's economic growth prospects. Even news about vaccines cannot compensate for these worries. Therefore, the dollar remains under pressure, even though the US stock market has reached its maximum levels, "said experts of Societe Generale.

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The Fed often acts on the side of the weak dollar and strong stock market indices. However, the stock market now seems to have gone too far in its expectations.

Apparently, investors believe that a divided Congress means a low probability of agreeing on a new package of fiscal stimulus measures, and they expect the Federal Reserve to intervene by increasing the volume of quantitative easing. However, the regulator may consider that it makes no sense to expand the QE program and risk financial stability in the country, especially in conditions when US stock prices are at record highs.

The increased risk appetite of investors, along with a decrease in demand for a protective greenback, pushed the EUR / USD pair to the area of weekly peaks around 1.1900.

"The EUR / USD exchange rate remains at a high level due to global optimism about the COVID-19 vaccine," ING strategists noted.

Another factor in supporting the single currency is that the United States began taking tough measures to contain the coronavirus a few weeks later than the eurozone countries. This implies that the epidemiological situation in the US will worsen in the near future, and efforts to smooth the incidence curve in the country will bear fruit only after some time. However, it should be understood that the economy of the currency bloc may suffer more than the US economy since European countries have introduced very strict quarantine measures.


"I'm not sure that the news about the vaccine will change the rules of the game much for our forecasts," said ECB President Christine Lagarde.

"Before we received news about the vaccine, we had negative data about the second wave of coronavirus and infection control measures that affected one country after another," the ECB chief added.

According to her, new restrictive measures may lead to the fact that with the beginning of winter, the Eurozone economy will be on the verge of a new recession.

The ECB estimates that the currency bloc's GDP will shrink by about 8% this year.

News related to the COVID-19 vaccine gives investors hope for a faster end to the pandemic and the subsequent recovery of the global economy. At the same time, the short-term prospects for global recovery remain dim, as the rate of coronavirus infection in the world is not decreasing.

Thus, the market is full of tailwind flows, and the task of investors is to set the sails in the right direction.

"The euro retreated, referring to the local highs near $1,1893. The bullish momentum has somewhat weakened, and the chances of the EUR/USD pair rising to 1.1920 are currently low. Then the pair can continue to consolidate and trade in the range of 1.1830-1.1895. The next strong resistance is at 1.1970. The pair will remain bullish as long as it is trading above the support at 1.1790," UOB experts believe.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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