EUR/USD: New Year, New Highs? Not So Fast, Three Dark Clouds May Trigger Setback

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  • EUR/USD has kicked off 2021 by resuming its gains amid dollar weakness. 
  • Concerns about covid variants, slow vaccine distribution, and Georgia’s special elections may bring it down. 
  • Monday’s four-hour chart is showing a moderately bullish picture.

“Nothing changes on New Year’s Day” – these from U2’s song apply to EUR/USD, which is resuming its gains on the first trading day of 2021. The safe-haven dollar renews its slide that typified late 2020 as investors look beyond the current coronavirus crisis (FXE, UDN).

While the general trend remains intact, there may be several bumps in the road – potentially triggering a downfall on Monday. Here are three reasons to expect a setback.

1) Slow vaccination pace

Optimism in markets heavily depends on COVID-19 vaccines. While additional immunization schemes received regulatory approval in the US, Europe, and elsewhere, deployment is proving slow. Manufacturing hiccups for the Pfizer/BioNTech (PFE, BNTX) jab in Europe – which kicked off its campaign only on December 27 – and overstretching of resources in the old continent result in frustratingly slow administering.

Source: OurWorldInData

US top epidemiologist Anthony Fauci has expressed optimism about a ramp-up in vaccinations and manufacturing should pick up in Europe as well. Nevertheless, the current bottlenecks may weigh on sentiment. That could change if federal resources are used to speed things up in the US and if Europe approves the AstraZeneca (AZN) inoculation.

2) Fast spread of the virus

The old continent is suffering from a worrying spread of covid, a result of cold weather and family gatherings around the holidays. Moreover, the contagious strain of the virus discovered in Britain is probably prevalent in the old continent as well. So far, only a few cases of the variant have been discovered in Europe, but genetic sequencing lags behind that in the UK.

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