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

German Chancellor Angela Merkel announced that restrictions will remain in place until after the Christmas holiday season and into January, expressing concerns about the current situation. In America, the covid crisis reached new highs with hospitalizations topping 100,000, daily infections nearing 200,000 and mortalities hovering around 2,700, levels last seen in the spring.

Will markets focus on the light at the end of the tunnel or the current darkness? The vaccine-virus tug of war is an ongoing theme.

3) Brexit may move the euro

For EUR/USD, a fresh boost could come from Brexit talks. Intense negotiations continue in London and the latest reports suggest that France may veto a deal if it sees too many compromises. While the daily grind of headlines mostly affects the pound, any big move will likely move the euro.

A collapse of EU-UK talks could trigger a substantial correction while a deal could extend the rally, even if other factors such as US fiscal stimulus fail to provide fresh fuel for the rally.

Overall, most positive developments seem to be priced in and fresh optimism is needed to sustain the rally.

EUR/USD Technical Analysis

(Click on image to enlarge)

Euro/dollar is benefiting from upside momentum on the four-hour chart, but the Relative Strength Index is well into overbought territory once again. The last time that it happened earlier in the week, the currency pair corrected to the downside.

Resistance awaits at the recent 32-month high of 1.2125, followed by 1.2150 and 1.22, levels that were in play in the spring of 2020.

Support is at 1.2080, where the recent correction began, followed by 1.2040, that correction’s lower point. Further down, 1.2005 and 1.1960 await EUR/USD.

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