EUR/USD hits 32-month high, takes 2020 gain to 8%

• EUR/USD sets a new 32-month high above 1.2120.
• Broad-based dollar sell-off and a slowdown in coronavirus across Europe propel EUR/USD higher.
• Morgan Stanley expects a continued decline in the US dollar.

There seems to be no stopping the EUR/USD rally. The currency pair is now trading near 1.2124, the highest level since April 2018, having charted a convincing breakout above 1.20 earlier this week. 

EUR/USD has hit a 32-month high for the second consecutive day and is now up 8% on a year-to-date basis. 

According to BK Asset Management's Kathy Lien, EUR/USD is being driven higher by the bearish US dollar sentiment, a slowdown in the coronavirus cases across Eurozone, stronger Eurozone data, and the stock market rally. 

"Germany reported a surprise drop in unemployment rolls that helped ease the unemployment rate. Manufacturing PMI for the Eurozone was revised higher, offsetting the sting of lower inflation," Lien noted

The dollar is being offered across the board, seemingly due to the rising US' twin deficits (current account and fiscal). Analysts at Morgan Stanley expect the greenback to decline by 10% over the next 12 months and the dollar weakness to bode well for the global economy. 

The European Central Bank (ECB) is expected to announce more stimulus at its Dec. 10 meeting. However, the plan was telegraphed by the ECB, allowing investors to discount the move. "Therefore, even though the prospect of ECB easing is negative for the euro, the lack of surprise may actually be positive for the currency," Lien said. 

Put simply, EUR/USD's rally is likely to continue, although there may be interim healthy pullbacks. Data wise, the focus today would be on final Eurozone PMI releases, Eurozone Retail Sales, and the weekly US jobless claims. 

Technical levels