EUR/USD: Attack On 1.24? Rising Chances Of Fiscal And Monetary Stimulus Down The Dollar

 

  • EUR/USD has risen on prospects that Democrats control the Senate and pass fiscal stimulus.
  • The Federal Reserve could expand its bond-buying scheme amid labor market concerns. 
  • Wednesday’s four-hour chart is pointing to further gains. 

The more the dollar is printed, the less it is worth. Prospects of additional fiscal and monetary stimulus are weighing on the greenback and could continue doing so. EUR/USD is already trading at the highest since early 2018 and moving to 1.24 is on the cards.

Georgia’s special runoff elections dealt the first blow to the safe-haven greenback. Democrat candidate Rapahel Warnock won his race against Senator Kelly Loeffler. The second race, pitting Republican Senator David Perdue against challenger Jon Ossof is closer, but trending toward another Democratic victory.

Ossof is leading by 0.37% after 98% of the votes were counted. The remaining ballots come from Democratic-leaning counties, potentially cementing his victory. The critical level is 0.50% – above which Georgia will not hold a recount. If the gap widens beyond that point, networks will likely call the election – and effective control of the Senate – for Democrats.

A majority, even the slimmest, would allow President-elect Joe Biden to pass another relief package worth between $1 to $2 trillion. A boost to the US and global economies would encourage more risk-taking and a sell-off of the dollar.

While the world may be better with vaccines, the current coronavirus situation remains grim – and is taking its economic toll. ADP’s private-sector jobs report has shown a surprising loss of 123,000 positions, far below estimates for an increase of positions.

The correlation between the payroll firm’s statistics and the official data has markedly loosened in 2020. Nevertheless, there is a growing chance that setback in the US economy is deeper than previously thought. The Federal Reserve may come to the rescue – expanding its bond-buying scheme.

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