- The USD is rebounding after Tuesday’s Democratic victory that gave them control of the Senate.
- The reduction of the Fed QE program will be a hot topic in 2021.
He EUR/USD it is consolidating just above 1.2250 after dropping around 0.5% or roughly 60 pips on the day as a result of the US dollar resurgence. The dollar’s reaction to Democrats’ election victories in Georgia earlier in the week, which gave them control of Congress, has so far been positive. The pair did not respond to strong US ISM services or weekly jobless claims data early in the session, as well as statements from the Fed.
There is intense debate raging about the long-term impact of increased US government spending in the coming months. The main bullish arguments are in the line of greater fiscal stimulus that will boost US growth in 2021 and beyond, which will lead to higher inflation and a more aggressive Fed. Indeed, the question of when to start pulling financial markets away from the Fed’s ongoing QE program already seems like a hot topic of discussion among Fed members. Meanwhile, the main bearish arguments are in the line of a higher Fiscal stimulus leading to higher government and trade deficits and higher bond yields, putting more pressure on the Fed to print money to keep the government’s borrowing costs low.
If the USD bulls fail to push DXY above the psychological level of 90.00, the bears may once again be emboldened to push the index to fresh yearly lows below 89.20 and will target the 2018 low at 88.25.
EUR / USD uptrend intact
The EUR / USD continues to respect an uptrend that (approximately) links the lows of December 9, 21, 22, 23 and 31. The pair’s 21-day moving average at 1.2250 also helped keep it above this level. A break below this trend line, which would likely be signaled as a break below 1.2250, would open the door for a move back towards the December 31 low just above the 1.2200 psychological level and then possibly towards the 1.2150 resistance zone.
4 hour chart
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