EUR/USD: Upside favored as S&P 500 VIX signals risk-on

EUR/USD looks north as the Cboe VIX drops below 20 in a dollar-negative manner.
The decline in Wall Street's fear index signals risk-on.
The US fiscal stimulation expectations also favor downside in the dollar.

Omkar Godbole FXStreet Contributor

EUR/USD is on the rise on the first trading day of the week and could challenge a crucial hurdle, with Wall Street's fear gauge signaling a continued rally in stocks.

The pair is currently trading 0.13% higher on the day at 1.2134. It has established 1.2149 and 1.2081 as levels to beat for bulls and bears, respectively, in the past two weeks.

A breakout looks likely, as the Cboe Volatility Index, also known as Wall Street's "fear gauge," ended below 20 on Friday to print the lowest daily close since the March 2020 crash.

According to FundStrat's Tom Lee, the VIX's decline indicates risk-on and could draw more Systematic and quantitative investment funds to equity markets. That could lead to a more profound decline in the anti-risk US dollar.

The greenback has become a preferred haven since the March crash and has taken a beating against major currencies alongside the record rally in the equities seen over the past ten months.

Also supporting the bullish case in the EUR are strengthening expectations for US fiscal stimulus. The weak US Nonfarm Payrolls released on Feb. 5 crystallized support for President Joe Biden's $1.9 trillion stimulus plan, allowing EUR/USD to recover from sub-1.20 levels to above 1.21 amid the Eurozone's slower vaccine delivery.

Data-wise, the focus today is on the Eurozone Industrial Production data. The market may witness below-average trading volumes on account of the President's Day holiday in the US.

Technical levels

1. R3 1.2196
2. R2 1.2166
3. R1 1.2142
PP 1.2112
1. S1 1.2088
2. S2 1.2058
3. S3 1.2034

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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