How many shots in the arm are needed to vaccinate against COVID-19? The medical debate has been raging on and so has the economic one – too many economic boosts may cause overheating, and this battle is tearing the dollar apart.

On the one hand, the greenback is a safe-haven currency and therefore suffers as the world is emerging from the health and economic crisis. President Joe Biden’s stimulus will help America recover and funds can flow out of the US to other places. This thinking is pushing EUR/USD higher.

On the other hand, an overdose raises fears of inflation – with oil and copper prices already shooting higher, also for their own reasons. In turn, investors are selling of US Treasuries, pushing yields to new highs. And that makes the dollar attractive.

At the time of writing, yields are having the upper hand, pushing EUR/USD down toward 1.21. However, two forces may change that. First, the German IFO survey for February is set to show optimism in Europe’s largest economy, providing support to the euro.

Nevertheless, the world’s most popular currency pair mostly moves to the greenback’s tune. Jerome Powell, Chairman of the Federal Reserve, is scheduled to testify before Congress on Tuesday and Wednesday, but his prepared remarks may already be published on Monday.

Will the Fed tolerate rising returns on US debt for much longer? While higher yields are a healthy sign of upbeat expectations for growth, they may also choke the recovery. Powell will likely reiterate the bank’s commitment to supporting the recovery – which means looser monetary policy for longer – and that could weigh on the greenback.

Investors will also be watching for developments related to the stimulus. Democrats have a narrow majority in the House and the tightest of margins in the Senate. The 50-50 – broken only by Vice-President Kamala Harris – means every senator from Biden’s part has significant power. Comments related to the stimulus bill may also move markets. Investors are confident that some bill will pass, yet probably below $1.9 trillion proposed by the president.

All in all, the current slide may turn into an upswing.

EUR/USD Technical Analysis

(Click on image to enlarge)

Euro/dollar is battling 1.2105, which is where the 50 Simple Moving Average on the four-hour chart hits the price. The 200 SMA is also approaching it. Momentum is marginal to the upside and the pair is trading above the 100 SMA. All in all, the picture is mixed.

Looking up, resistance awaits at 1.2140, which was a high point on Friday. It is followed by 1.2170, the February high, and then by 1.2190.

Support is at 1.2080, where the 100 SMA hits the price. It is followed by 1.2055 and 1.2020.