EUR/USD: Attack on 1.19? Vaccine optimism outweighs grim virus reality (for now)
A new week, another immunization announcement? On Monday last week, markets soared in response to the from Pfizer and BioNTech – reporting 90% efficacy in their interim results for a coronavirus vaccine. Massachusets-based Moderna is set to report preliminary figures from a similar Phase 3 trial during this week. As both firms use the same messenger RNA technology, expectations are high.
The safe-haven dollar is on the back foot amid these hopes and is also pressured by a dose of political calm in the US. Additional Republican leaders have called on President Donald Trump to enable a smooth transition to the team of President-elect Joe Biden.
Trump seemed to recognize Biden’s victory in a tweet on Sunday, but quickly retracted and repeated unsubstantiated claims that the process was rigged. Nevertheless, the president’s court cases made no traction and a recount in Georgia is set to leave Biden as the winner.
The president-elect also added to optimism as his campaign clarified that he does intend to impose a nationwide lockdown that would choke the economic recovery. It is unclear if the incoming administration would be able to introduce massive stimulus – which depends on controlling the Senate. Two runoff races in Georgia will determine control of the upper chamber.
Another reason for optimism comes from the Federal Reserve, which opened the door to expanding its bond-buying scheme – another dollar downer. Steve Englander at Standard Chartered suggested that the Fed could act even before its mid-December decision, given the increase in COVID-19 cases.
Coronavirus infections, hospitalizations, and deaths are on the rise on both sides of the Atlantic, and markets currently shrug it off.
Germany is reportedly considering tightening its “lockdown light” restrictions and several US states are also imposing restrictions. Nevertheless, at least for now, the focus is on the future rather than the present.
How long will this continue? Probably until additional vaccine news is out, at which point markets could suffer profit-taking – a “buy the rumor, sell the fact” response.
EUR/USD Technical Analysis
Euro/dollar is benefiting from upside momentum on the four-hour and trades above the 50, 100 and 200 Simple Moving Averages. The Relative Strength Index is just below 70 – thus outside overbought conditions.
All in all, bulls have the upper hand.
The currency pair is tackling resistance at 1.1860, which was a swing high in early November. It is followed by 1.19, a psychologically significant level and also a peak several times in recent months. The next cap is 1.1920.
Support awaits at 1.1820, which was a temporary top last week. Further down, 1.1780 and 1.1745 were cushions last week and may come into play if the pair loses ground.