EUR/USD: Critical Triple-Bottom Looks Vulnerable After The Dead-Cat Bounce

Another day, another EUR/USD dead-cat bounce – but this one may lead to a loss of critical support. The euro is unable to take advantage of the dollar’s weakness, and that could be a sign of things to come.

Why is the greenback giving ground?

Investors are selling the safe-haven dollar amid fresh optimism on several fronts. US President Joe Biden has met a group of ten Republican senators who laid down a stimulus proposal worth around $600 billion – less than a third of the White House’s $1.9 trillion plan. Both sides described the meeting as productive, a positive development.

With the support of ten GOP members, Biden would have the backing of 60 senators – a filibuster busting majority that would enable sending funds swiftly to the economy. Will markets see $600 billion as insufficient? Perhaps, and Democrats may still decide to go it alone without Republican support, using a process called “reconciliation.” Nevertheless, markets are happy with prospects of progress.

Another reason to be cheerful is America’s rapid vaccination campaign – which has picked up speed in recent days – and compounds a decline in COVID-19 cases and especially hospitalizations. If America’s engine returns to full capacity sooner, the entire world benefits.

Why the euro may tumble

The euro may find solace in the fact that the European Union has climbed down the tree in its clash with AstraZeneca, with both sides agreeing to a compromise. Moreover, Pfizer promised more jabs.

Nevertheless, the old continent’s immunization attempt is extremely lengthy and European Commission President Ursula von der Leyen’s attempt to promise an acceleration seems to have little credibility. Another delay in Europe’s vaccination campaign and the common currency could be knocked lower.

Eurozone Gross Domestic Product figures for the last quarter of 2020 may also add pressure. The economic calendar is pointing to a decline in output after the third quarter’s rapid recovery, and there are growing fears of a double-dip recession.

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