EUR/USD: Fakeout At 1.20? Why The Euro May Suffer A Downward Correction

Light at the end of the tunnel – and also 1.20 is within reach – but a downtrend correction cannot be ruled out as EUR/USD hits a three-month high.

The good news pushing the euro higher comes from the vaccine front. British regulators could be the first out the door in approving the Pfizer/BioNTech COVID-19 vaccine. As BioNTech is a German firm, approval in the EU will likely follow shortly. Moderna’s inoculation will likely follow. Even if European and American authorities wait longer, the first immunization program to receive the green light in the West is set to boost markets.

The US dollar has also been on the back foot as investors take profits on stocks and buy US bonds. The drop in yields is making the greenback less attractive.

On the other hand, coronavirus is still rampant in the US – where hospitalizations have hit a new high above 93,000 – and Germany. The drop in US infections is likely temporary, a result of reporting issues around the Thanksgiving holiday. Contrary to Spain and France, the old continent’s largest economy is struggling to contain the disease and has extended its “lockdown light. ”

(Click on image to enlarge)

Source: FT

Germany’s economy minister said that that the covid numbers are still “much too high” in most regions. Such comments may limit any euro gains.

The common currency may also struggle with updated inflation figures. Spain and Germany are set to report preliminary Consumer Price Index statistics for November and they will likely serve as a reminder of economic weakness. Christine Lagarde, President of the European Central Bank, is set to speak later and repeat her message of adding stimulus in the upcoming meeting.

The case for a “fakeout” – a quick move above 1.20 before a sharp correction lower – also comes from end-of-month flows. After EUR/USD advanced from the 1.16 handle early in the month, money managers may balance their portfolios and sell the common currency.

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