EUR/USD points to the downside on expectations of robust US stimulus

The EUR/USD pair has reached the critical 1.2050 level after benefiting from dollar weakness, but there are good reasons for rejection and a fresh downfall, according to FXStreet’s Analyst Yohay Elam.

Key quotes

“So far, Dems have advanced a blueprint for large stimulus but have yet to fill the details as negotiations continue and as Congress prepares for former President Donald Trump's trial. Progress toward a larger boost would push the dollar higher, while compromises with moderates would send it lower.” 

“The old continent's vaccination campaign is set to gather some steam, but the US is far ahead, inoculating over 9% of the population in contrast to only 2-3% in many European countries.” 

“Recent covid statistics have been more encouraging in the US, while Europe is more exposed to the B 1.1.7 strain, aka the British variant. This more contagious version of the disease is spreading quickly in America, but its impact remains minor for now.” 

“Euro/dollar has hit the critical 1.2050 levels which had supported it three times in January before the downfall late in the month. The 50 SMA is converging with 1.2050, making it even more robust. Looking down, support awaits at 1.20, which is a psychologically significant level and was a cushion in early February. The fresh 2021 trough of 1.1950 is the next level to watch.”

“Above 1.2050, the next cap is at 1.2090, which was held down last week. It is followed by 1.2130, 1.2160, and finally 1.2190, the mid-January top.”