EUR/USD has clawed its way up from the one-month lows amid a better market mood. According to FXStreet’s Analyst Yohay Elam, the testimony from Janet Yellen, in her confirmation hearings for Treasury Secretary, can turn the dead cat bounce into a roaring rally.
“Biden already said that ‘everybody should pay their fair share’ and signaled closing loopholes and hiking taxes on the very rich. While such moves would not hurt the majority of Americans, Wall Street would shudder and stocks could reverse their gains. In such a rick-off scenario, the safe-haven US dollar would gain and the recent bounce in EUR/USD would prove a dead cat bounce – only a minimal upward move followed by a fresh free-fall.”
“Spending is necessary due to the current situation and is made easier by cheap borrowing costs. If the former Fed Chair points to low yields when asked about funding the stimulus, markets may interpret it as a sign that no new taxes are coming – positive for risk.”
“Moreover, some may interpret any leaning on cheap funding as a hint that Yellen is already working with Powell – that perhaps she knows of an upcoming expansion in the bank's bond-buying scheme.”
“Coronavirus continues raging on both sides of the Atlantic. German Chancellor Angela Merkel is contemplating not only extending the lockdown but also tightening it. Italy's Prime Minister Giuseppe Conte is facing a crucial vote of no-confidence in the Senate after surviving one in the lower chamber.”
“Bears have the upper hand. For bulls to recover, EUR/USD needs to recapture 1.2125, a former triple-bottom. It is followed by 1.2175, which was a swing high last week. Support is at the one-month low around 1.2050, followed by the round 1.20 level and then by 1.1960.”
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