EUR/USD: Next Correction Could Be A Crash Without A Stimulus Or Brexit Breakthrough

Rally, short correction and another rally? That has been the pattern for EUR/USD in recent days but it may run out of steam without another dose of encouraging developments. The world’s most popular currency pair has been benefiting from two developments, which have their countertrends as well.

1) Downing the dollar in Washington

The latest leg down for the safe-haven dollar comes from Washington. House Democrats gave their blessing to a trimmed-down bipartisan deal crafted by Senators. While a package worth $908 billion is below what markets wish for, any cash agreed in the lame-duck session would be a blessing.

Will Republicans and Democrats strike a deal or just continue talking? That could be critical for euro/dollar. 

President-elect Joe Biden aims for additional relief once taking office That heavily depends on Dems taking control of the Senate in Georgia’s special elections in early January.

On the other hand, the greenback may benefit from a flight to safety amid another bipartisan consensus – a new bill curbing Chinese firms’ activity in US stock markets is another thorn in Sino-American relations. Outgoing President Donald Trump is set to sign the bill into law.

Apart from both political developments, data is eyed on Thursday. Weekly Unemployment Claims are set to tick down after rising for two consecutive weeks, a worrying development last seen in July.

Later on, the last hint ahead of Friday’s Nonfarm Payrolls comes from the ISM Services Purchasing Managers’ Index and its employment component. Growth likely continued in November, yet at a slower pace.

2) Vaccine vs. the virus

One of the main upside drivers for markets came from rapid announcements related to COVID-19 vaccines. The UK regulator was the first in the West to approve immunization, giving another shot in the arm to markets. While most European countries have turned a corner against the virus, the largest country is still struggling.

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