EUR/USD Forecast: Next stop 1.22? Not so fast, five reasons for a fall on Nonfarm Payrolls day

• EUR/USD is holding onto gains based on vaccine, stimulus and Brexit optimism. 
• Profit-taking, vaccine bumps, stimulus doubts, Brexit and Nonfarm Payrolls could trigger a correction.
• Friday's four-hour chart is showing overbought conditions. 

Happy Friday for euro bulls? The currency pair has been in a nonstop rally mode, making only short pauses on its way up, without a meaningful correction. However, a reckoning may come as the week draws to a close. 

Five reasons for a correction

1) Profit-taking

The first reason to expect a sharper correction stems from the market's close for the week. Traders may want to cash in on the recent trend and enjoy a quiet weekend. That may happen around the London fix at 16:00 or earlier. 

2) Vaccine optimism and bumps:

One of the leading downside drivers for the safe-haven dollar came from optimism regarding a COVID-19 vaccine. However, two adverse developments may curb enthusiasm, at least temporarily. First, Dr. Anthony Fauci, America's lead epidemiologist, cast doubts about the UK's fast approval process. While he later retracted his comments, concerns about a hasty process may sip into markets. 

The second bump comes from that approved immunization by Pfizer/BioNTech – only 50 million doses will be made available in 2020, half the amount initially projected. In the bigger scheme of things, it is only a minor delay, yet perhaps enough to trigger a correction.

3) Stimulus skepticism:

The prospects of seeing a quick approval of a near $1 trillion relief package also weighed on the greenback. However, Senate Majority Leader Mitch McConnell reportedly prefers a smaller stimulus deal, curbing market enthusiasm. 

4) Brexit: After a deal seemed close,

UK officials are reportedly upset with new EU demands, potentially derailing an agreement. The next moves by Chief EU Negotiator Michel Barnier – which is returning from London to Brussels for consultations – will be closely watched. If talks spill into the weekend, uncertainty could weigh not only on the pound but also on the euro.

5) US Nonfarm Payrolls:

After September's jobs report was overshadowed by President Donald Trump's covid and October's by the elections, the upcoming report returns to center stage. The economic calendar is pointing to an increase of 469,000 positions, lower than in previous months. Projections have been driven lower by downbeat figures from ISM's Purchasing Managers' Indexes and by ADP's private-sector labor report.

However, the NFP provided upside surprises in recent months, and that could happen again – boosting the dollar. 

See:

• US Nonfarm Payrolls November Preview: Orders now, hiring to come
• Nonfarm Payrolls Preview: Another dollar’s disappointment underway

All in all, the fundamental conditions seem ripe for a more meaningful correction. 

EUR/USD Technical Analysis

The Relative Strength Index on the four-hour chart remains in overbought territory, a situation that is usually unsustainable – and could trigger a substantial downside correction. 

Resistance awaits at the new 32-month high of 1.2172, followed by the round 1.22 level which also played a role in 2018. The next level to watch is 1.2250.

Support is at 1.2125, which temporarily capped EUR/USD on Thursday, followed by 1.2080, a peak seen earlier in the week, and then by 1.2045, a support line. 

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