EUR/USD: Even A Three-pronged Santa Rally May Suffer Corrections, Is One Coming?

Bank Note, Euro, Bills, Paper Money

  • EUR/USD has been advancing amid hopes for imminent Brexit and US stimulus deals. 
  • The Fed’s commitment to do support the economy is the third cheerful booster.
  • The grim virus reality may spark a much-needed correction. 
  • Thursday’s four-hour chart is showing the pair is overbought. 

Too good to be true? EUR/USD is nearing 1.2250, the highest since 2018, and while it has convincing reasons to rise, the pair may have gone too far, too fast, and may suffer a downside correction (FXE, UDN).

First, here are updates on the pair’s three reasons to rise:

Three EUR/USD boosters

1) Fed support: The Federal Reserve refrained from adjusting its bond-buying scheme, disappointing some that had expected imminent action. However, Chairman Jerome Powell reiterated his commitment to do what is necessary and pledged to continue with low rates through 2023 and with Quantitative Easing for an extended time. After an initial rise, the dollar dropped once again. Powell added that there is a “very strong case” for more relief from the government.

2) US fiscal stimulus: With or without Powell’s words, lawmakers in Washington are making progress toward signing off on a $900 billion package that President-elect Joe Biden calls a “downpayment” – ahead of more spending in 2021. The encouraging news weighs on the safe-haven dollar.

3) Brexit talks: EU and UK negotiators remain quiet – and that is a positive sign of progress. Both sides are at loggerheads over fisheries, a politically sensitive issue, yet a minuscule one that can be resolved. The pound’s rise is dragging the euro higher (FXB).

Things to worry about

1) The virus: Coronavirus continue spreading and has hit French President Emmanuel Macron among many in the old continent. European countries are announcing Christmas restrictions instead of easing around the holidays. US deaths, hospitalizations, and cases remain on the rise. Moreover, a person that received the Pfizer/BioNTech (PFE, BNTX) vaccine developed a serious allergic response. Additional snags are likely.

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