EUR/USD Forecast: Time for a rational rally after the wild vaccine-related action

Light at the end of the tunnel – but not a euphoric kaleidoscope trip that ends with a hangover. A vaccine for COVID-19 seems to be within reach after Pfizer and BioNTech announced that their Phase 3 trial yielded 90% efficiency in preventing infections – and the market reaction was wild. 

Stocks soared and the safe-haven dollar dropped, allowing EUR/USD to top 1.19. However, the world's most popular pair fell rapidly as investors flocked to equities and ditched the safety of US bonds. In turn, rising yields on American Treasuries made the greenback more attractive, triggering a sharp turnaround. 

Apart from the high volatility and the comeback related to yields, are there reasons to be pessimistic about the vaccine? Probably not. 

Scientists outside the project were thrilled with the achievement that could help the world move. Moreover, some noted that efforts by Moderna, AstraZeneca, and Johnson&Johnson use similar approaches to developing immunization – providing hopes for their efforts would yield similar results. In turn, that would allow parallel production and distribution of the drug. 

See Pfizer's success promising for three other efforts, rally may have only just begun

While massive production and storing the doses in extremely cold temperatures could cause delays – the hard part is over. After the initial excitement, there is room to hope that immunizing the world is a matter of months – and only requires passing the next few months.

"A dark winter" is how US President-elect Joe Biden described what is facing Americans as the number of hospitalizations has hit 59,000 in the US – the highest since July. America's infections and mortalities are on the rise. Biden urged wearing masks and unveiled a coronavirus taskforce as he prepares to take office. 

However, President Donald Trump is digging in, refusing to accept the results and repeats unsubstantiated claims of fraud. His legal team is trying to challenge results in several states but has yet to show evidence. There are few remaining votes to count, and they are dropping slowly. A relatively larger batch of figures is due out toward the weekend. The focus will likely shift to the Georgia runoffs in early January, which will determine control of the Senate. 

See 2020 Elections: Biden wins also per Fox, markets set to focus on Georgia's Senate races

The economic calendar features the German ZEW Economic Sentiment for November, which is set to show a deterioration in confidence. Europe's largest economy is undergoing its second lockdown, yet the economic impact is set to be smaller than the first shuttering in the spring. 

Overall, it seems that after the euphoria and the hangover, optimism about a covid vaccine could push markets higher and the dollar lower – as long as yields do not go wild. It is essential to note that the Federal Reserve continues buying bonds and is likely to keep a lid on returns. 

EUR/USD Technical Analysis

Euro/dollar continues benefiting from upside momentum on the four-hour chart and holds well above the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is hovering around 50, far from overbought conditions. 

All in all, bulls are in control. 

Resistance awaits at 1.1840, the daily high, followed by 1.1860, which was a separator of ranges in recent days. Next up, round 1.19 and 1.1920 await the pair. 

Support is at 1.1795, Monday's low, followed by 1.1770, a peak in early November. Further down, 1.1715 and 1.17 await EUR/USD. 

See 2020 Elections: Markets are cheering, but what exactly? Some answers and what's next