EUR/USD Forecast: Vaccine hope or lockdown gloom? US fiscal stimulus key to smashing double-top

EUR/USD has been rising cautiously as European lockdowns counter vaccine optimism.
Fresh hopes for a US fiscal stimulus deal and also a Brexit one could boost the euro.
Tuesday's four-hour chart is painting a bullish picture.

Yohay Elam FXStreet

Can EUR/USD break the double-top at 1.2177? The answer depends on the dual virus narratives and also on two sets of negotiations – and there is fresh room for optimism for euro bulls.

Hope for a breakthrough comes from Washington. Senate Majority Leader Mitch McConnell said it is time to get together and seal the COVID-19 relief package. The powerful politician is known for keeping his cards close to his chest, remaining nearly silent on the elections, and also on his thoughts about the various bipartisan stimulus proposals.

It is probably no coincidence that McConnell shifted from reluctance to push through a bill to urging action on the same day that the Electoral College formalized President-elect Joe Biden's victory. The legal paths for outgoing President Donald Trump have been fully exhausted and serving members of Congress may feel more comfortable cooperating with rival Democrats as Trump's long shadow begins fading.

Reports of progress on Capitol Hill could boost market sentiment and weigh on the US dollar. A deal would also be a relief for the Federal Reserve, which publishes its last rate decision of the year on Wednesday. The Fed will likely sit on its hands and back the lack of action with more upbeat forecasts.

See Fed Preview: How a dose of economic Christmas cheer could spoil the market mood

There is also a glimmer of hope in Brexit talks. Reports suggest some progress has been made on the thorny topic of setting a Level-Playing-Field – rules for regulatory alignment – and other topics. However, a breakthrough may have to wait for another day, as Chief EU Negotiator Michel Barnier said the path to a deal is narrow.

These dual sets of talks come on the background of new lockdowns in the old continent. Germany will enter a holiday shuttering on Wednesday and is followed with similar measures by Czechia and the Netherlands. France has already postponed the end of its nationwide lockdown and Italians are also likely to face limitations around the most important holiday on the calendar.

US coronavirus cases, deaths, and hospitalizations remain on the rise, shattering records and potentially forcing severe restrictions in New York City – one of the world's financial capitals. However, while America's covid mortalities are around 300,000, the beginning of a vaccination campaign is boosting hope for a smooth 2021 and countering the current gloomy present.

Source: FT

Overall, markets are looking for a direction and there is more room to the upside than to the downside.

EUR/USD Technical Analysis

Euro/dollar has been trading alongside uptrend support and benefits from upside momentum on the four-hour chart. It is also holding above the 50 Simple Moving Average. All in all, bulls are in control.

The 2020 peak of 1.2177 is a major hurdle – especially after it became a double-top following Monday's failed attempt to break higher. Topping that level opens the door to 1.22 and 1.2250.

Support awaits at 1.2120, which is where the 50 SMA hits the price. The next cushion is 1.2105, a low point from last week, followed by 1.2060 and 1.2040.

More Where next for the Fed, fiscal stimulus and Trump

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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