EUR/USD: Grim virus reality to spark a much-needed correction

EUR/USD is nearing 1.2250, the highest since 2018, and while it has convincing reasons to rise, the pair may have gone too far, too fast and may suffer a downside correction, FXStreet’s Analyst Yohay Elam reports.

See – EUR/USD targets the 2018 peak at 1.2556 – Commerzbank

Key quotes

“The Federal Reserve refrained from adjusting its bond-buying scheme, disappointing some that had expected imminent action. However, Chairman Jerome Powell reiterated his commitment to do what is necessary and pledged to continue with low rates through 2023 and with Quantitative Easing for an extended time. After an initial rise, the dollar dropped once again.”

“Lawmakers in Washington are making progress toward signing off on a $900 billion package that President-elect Joe Biden calls a ‘downpayment’ – ahead of more spending in 2021. The encouraging news weighs on the safe-haven dollar.”

“EU and UK negotiators remain quiet – and that is a positive sign of progress. Both sides are at loggerheads over fisheries, a politically sensitive issue, yet a minuscule one that can be resolved. The pound's rise is dragging the euro higher.”

“Coronavirus continue spreading and has hit French President Emmanuel Macron among many in the old continent. European countries are announcing Christmas restrictions instead of easing around the holidays. US deaths, hospitalizations and cases remain on the rise. Moreover, a person that received the Pfizer/BioNTech vaccine developed a serious allergic response. Additional snags are likely.” 

“The winter wave is taking an economic toll. US Retail Sales fell by 1.1% in November, worse than expected – and on top of a downward revision. Thursday's weekly jobless claims are forecast to drop, yet after leaping last week.” 

“The Relative Strength Index on the 4-hour chart is touching 70 – entering overbought conditions. While momentum is to the upside, a downside correction cannot be ruled out.”