EUR/USD Forecast: Euro needs a shot in the arm from J&J after riding on dollar weakness

Dollar weakness cannot last forever – but the euro may find fresh reasons to rise. The surge above 1.20 has been driven by the greenback's decline, which has various reasons. Optimism that the US recovery drags the world economy higher and relatively tame US Treasury yields are the main reasons for the move. 

Returns on benchmark ten-year US bonds are around 1.62% at the time of writing, still significantly below the peak of 1.77% but above the recent bottom just below 1.55%. Can the dollar remain depressed while yields continue recovering? 

Another potential cap on the greenback comes from President Joe Biden's infrastructure spending plans. The Commander in Chief met a Congressional delegation on Monday and additional developments are likely on Tuesday. If Democrats manage to pass a corporate tax hike, it would mean less debt issuance down the road and less pressure on bonds. In turn, lower yields would weigh on the dollar.

However, the next EUR/USD moves likely depends on developments in the old continent. The European Medicines Agency (EMA) is set to publish its verdict on Johnson & Johnson's single-dose vaccine on Tuesday. After last week's suspension, there is a good chance that the regulator allows its usage, boosting Europe's vaccination campaign.

The suspension in Europe followed that in the US, a result of six cases of blood clots after 6.8 million jabs given. While the EMA may enact age or other limits, the unleashing of 55 million inoculations in the current quarter would put Europe in a significantly better spot. 

Europe has already ramped up its immunization campaign, reaching roughly 20% of its population with one shot.

Another boost to the common currency may come from Germany, where the ruling CDU/CSU bloc is about to decide on who will be the party's chancellor candidate. According to reports from Berlin, the CDU's moderate leader Armin Laschet will likely remain at the helm, providing some relief to markets. 

Investors are also speculating about the European Central Bank's rate decision on Thursday, and it may have reasons to be optimistic as well.

See European Central Bank Preview: Five reasons for  agarde to lift the euro

All in all, EUR/USD may receive more reasons to rise.

EUR/USD Technical Analysis

Euro/dollar is benefiting from upside momentum on the four-hour chart and trades well above the 50, 100 and 200 Simple Moving Averages (SMAs). On the other hand, the Relative Strength Index (RSI) is at 70 – flirting with overbought conditions. 

The daily high of 1.2075 is the immediate resistance line. It is followed by 1.2110, which was a swing high in early March. Further above, 1.2180 and 1.2245 are eyed. 

Support awaits at 1.2025, a stepping stone on the way up, followed by the round 1.20 level. Further down, 1.1950 and 1.1920 come into play.

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