EUR/USD Forecast: Bears attacking critical support, Nonfarm Payrolls trigger a bounce

Is King Dollar reclaiming its throne? The greenback has been extending its comeback, buoyed by rising bond yields. Democrats' win in Georgia gives President-elect Joe Biden's party control of the Senate – and a path to vast expenditure.

The new administration may opt for a stimulus package worth as much as $3 trillion, including considerable infrastructure spending on top of pandemic-relief measures. Prospects of more government debt push investors away from Treasuries, with the ten-year yield floating around 1.1%. In turn, that makes the dollar more attractive. 

Five factors moving the US dollar in 2021 and not necessarily to the downside

Markets are looking to the medium term and continue shrugging off the historic raid of the Capitol by President Donald Trump supporters. In the short term, cabinet resignations and growing Democratic calls for his impeachment are dramatic, but an early departure – with only 12 days to go – makes little difference to Wall Street. 

The focus shifts to the King of economic indicators – US Nonfarm Payrolls. The economic calendar is pointing to an increase of fewer than 100,000 jobs in December, a considerable slowdown, and a result of the winter wave of the virus. Leading indicators toward the event were mixed. One worrying statistic was ADP's private-sector labor report, which showed a loss of 123,000 jobs. 

If the official figures also show a squeeze in hiring, the dollar could drop on expectations of more stimulus from the central bank. Jerome Powell, Chairman of the Federal Reserve, speaks next week and may provide hints toward the upcoming Fed meeting later this month.

See: 

• Nonfarm Payrolls Preview: Long path to recover to be even longer
• US Nonfarm Payrolls December Preview: Labor economy woes escalate

Do vaccines work against the new variants? Pfizer said that the solution is developed with BioNTech is efficient against the more sophisticated South African strain, cheering investors. On the other hand, British scientists and also politicians cast doubts about it – and more data is needed. Ursula von der Leyen, President of the European Commission, announced the EU secured more doses of the vaccine. 

In the meantime, Germany reported a record daily death toll, and hospitals across the continent continue struggling. Admissions are above 130,000 in the US and mortalities surpassed the grim mark of 4,000 on Thursday. 

Overall, the battle between the vaccine and the virus continues, and so does the fight over US yields – which is critical for the dollar and the next moves in euro/dolar. 

EUR/USD Technical Analysis

Momentum on the four-hour chart has flipped downward while EUR/USD is still battling teh 100 Simple Moving Average. It is trading below the 50 SMA but above the 200 one. 

All in all, bears are gaining ground but are far from full control.

Critical support awaits at 1.2205, which is closing level on the last day of 2020. A breach of that level opens the door to 1.2175, 1.2150, and 1.2150, all stepping stones on the way up last month.

Resistance is at 1.2275, which capped the pair in mid-December, followed by 1.2310, a former double top, and then by 1.2350 – 2021 high.