EUR/USD: Weak recovery could turn into snowballing lower

EUR/USD has been failing to take advantage of the upbeat market mood and advance. The critical 1.2050 triple-bottom looks vulnerable after the dead-cat bounce as concerns about eurozone growth, vaccine supplies or US stimulus may spark a sell-off, according to FXStreet’s Analyst Yohay Elam.

Key quotes

“US President Joe Biden has met a group of ten Republican senators who laid down a stimulus proposal worth around $600 billion. Both sides described the meeting as productive, a positive development. Will markets see $600 billion as insufficient? Perhaps, and Democrats may still decide to go it alone without Republican support. Nevertheless, markets are happy with prospects of progress.”

“A reason to be cheerful is America's rapid vaccination campaign – which has picked up speed in recent days – and compounds a decline in COVID-19 cases and especially hospitalizations. If America's engine returns to full capacity sooner, the entire world benefits.”

“The euro may find solace in the fact that the European Union has climbed down the tree in its clash with AstraZeneca, with both sides agreeing to a compromise. Moreover, Pfizer promised more jabs. Nevertheless, the old continent's immunization attempt is extremely lengthy. Another delay in Europe's vaccination campaign and the common currency could be knocked lower.”

“Eurozone Gross Domestic Product figures for the last quarter of 2020 may add pressure. The economic calendar is pointing to a decline in output after the third quarter's rapid recovery, and there are growing fears of a double-dip recession.” 

“Critical support awaits at 1.2050, which is a triple-bottom – and the lowest level in 2021. Losing it would send the pair to the lowest in two months. The next levels to watch are 1.20 and 1.1960. Some resistance is at the daily high of 1.2090, followed by 1.2140, which is the convergence of the 50 and 100 SMAs.”