EUR/USD: Five Reasons To Big Break Below Critical Support At 1.2060

Light at the end of the tunnel? That may be a truck coming at full speed to ram EUR/USD bulls. The recent falls may be the beginning of a more significant downfall, which could send the pair to fresh 2021 lows.

Here are five reasons for an extended downfall:

1) Market gloom

The madness around Gamestop – where retail traders are pushing the valuation of a videogame firm and defeating hedge funds – may be a sign of market exuberance – and a late-stagy rally. While several shares such as GME are skyrocketing, the bigger ones are on the back foot in fear of a sell-off.

When shares fall, the safe-haven dollar gains, weighing on EUR/USD. The Federal Reserve did its best to cheer investors by committing to support the economy as much as needed and refusing to see the recent equity frenzy as “froth.” Moreover, Fed Chair Jerome Powell said that it is premature to talk about an exit and that the economy has a long way to go. His words imply lower rates and elevated bond-buying for longer.

If the world’s most powerful central bank is unable to turn the market mood – at least for now – there is more room for risk aversion.

2) ECB becoming tough

On the other side of the pond, European Central Bank member Klaas Knot explicitly complained about the high valuation of the euro, adding that his institution has tools to deal with it. Later on, reports suggested that the ECB may further cut its deposit rate – which is at -0.50%. The specter of more cuts is weighing on the euro.

During 2020, the ECB expanded its balance sheet, but the euro advanced instead of falling.

3) AstraZeneca-EU row

Some Spanish regions are already running out of vaccine dose. What began as a delay from Pfizer/BioNTech was compounded by a delay of jabs from AstraZeneca and now aims to derail the recovery.

Brussels and the British pharmaceutical firm are feeding about the timing of doses’ deliveries, with the bloc suggesting it could go to courts. The European Medicines Agency is set to approve AstraZeneca’s immunization on Friday.

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