Capped below daily highs, EUR/USD is facing a number of fundamental challenges ahead

EUR/USD is currently trading at 1.1866 and is relatively flat on the day having travelled between a low of 1.1850 and 1.1891.

There have been mixed sentiment with regards to the coronavirus risks, with the markets looking through the pandemic and stocks trading as though it was a post covid world. 

The vaccine news has been the catalyst for risk-on sentiment supporting stocks higher and driving flows into risk assets. 

On Wall Street today, Pfizer PFE shares gained 1.50% after the drugmaker said its COVID-19 vaccine was 95% effective and the company would apply for emergency US authorization within days.

This news followed a similar report from Moderna's on the effectiveness of its vaccine at the start of the week. 

However, with many major equity indexes at or near record levels, analysts caution additional stimulus measures are needed to buttress the US economy until a vaccine can be widely distributed.

ECB and euroland politics in focus

Specifically for the euro, much of the trading has gone through the greenback, but European politics could be problematic again for the single currency. 

While the US dollar moved off its earlier lows following the housing data, the greenback was still on pace for its fifth straight decline as the Pfizer news gave investors an appetite for some risk-taking. The dollar index DXY fell to 92.21, but has since recovered some ground back to 92.37. 

Meanwhile, analysts at Rabobank said that they have specific concerns that investors ''may be approaching the winter with too much optimism in the price''.

''Not only is more stimulus in store from the December ECB policy meeting which could weigh on the single currency, but EU budget concerns are again rising to the fore, Infighting within the EU could delay the rollout of the Recovery Fund at a time when there is an increased need for fiscal support in many European countries.''

These risks, they argued, suggest that EUR/USD may not be the best medium through which to express a bearish USD view.

''Faced with a period of inter-EU bickering on the budget and a possible delay on the Recovery Fund at a time when the pandemic is raging in the region, the EUR could be vulnerable. Given also the approach of the December ECB policy meeting, we see scope for a pullback towards EUR/USD1.17 on a 1 month view.''