EUR/USD: Double Bottom In Danger As Bears Accumulate Ammunition

Is the only way down? The current calm in markets is one preceding a storm – and it is impossible to find one bullish argument in favor of EUR/USD. The only question seems to be one of timing – before or after the Federal Reserve’s decision?

Here are the main weights on EUR/USD:

Vaccine issues: All of Europe’s large countries followed Germany in suspending the rollout of AstraZeneca’s COVID-19 vaccines after several cases of blood clots related to the inoculations. As millions of doses have been successfully administered in Europe, the UK, and elsewhere, some suspect that a specific batch is a culprit. On the other hand, the European Medicines Agency dismisses these concerns.

For markets, any delay in Europe’s vaccinations – which had already been advancing at a snail’s pace – the meaning is a postponement in the economic recovery. That is a key downside driver for the euro.

Moreover, the Astra crisis comes just as Italy is undergoing a new lockdown, and Germany is worried by an exponential increase in coronavirus cases. That compares with acceleration in US immunization and an ongoing downtrend in infections there.

The German ZEW Economic Sentiment is set to show ongoing optimism about a vaccine-led recovery as it has probably been unable to capture the recent developments. The survey was also mostly taken before the weekend’s regional elections, which dealt a blow to Chancellor Angela Merkel’s center-right party. Political uncertainty may also weigh on the common currency.

On the other side of the pond, tension is growing toward the Federal Reserve’s decision on Wednesday. Will the world’s most powerful central bank release subtle hints of raising rates earlier than expected. The Fed will likely walk a fine line between acknowledging the economic improvement without scaring investors of rising borrowing costs. The “dot-plot” of new forecasts – including for rate hikes – is set for minor upgrades.

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