- EUR/USD has surged above 1.20 to the highest since May 2018.
- Vaccine hopes, monetary stimulus and a dose of political certainty are behind the move.
- Euro/dollar has significant room to run up to 1.2205.
Make EUR/USD great again – the world's most popular currency pair is finally moving rapidly and hitting levels last seen 31 months ago after a long period of frustration in the past. What is behind the move and where next?
Three reasons for the EUR/USD breakout
1) Vaccine hopes: Pfizer and BioNTech were the first to report high efficacy in a Phase 3 coronavirus immunization trial on November 9. Since then, additional updates from that project and also from Moderna, AstraZeneca and Novavax have been flowing. The next moves come from regulators – which are set to approve a jab as early as this week – and then the first injections. The news has been pushing the safe-haven dollar down and every update helps convince skeptics that "the cavalry is coming."
2) Monetary stimulus one-two punch
The European Central Bank and the Federal Reserve are both set to expand their bond-buying schemes – yet these developments have opposite effects on the underlying currencies. Since the pandemic broke out, ECB stimulus has been seen as supporting the eurozone's recovery by allowing governments to spend more. In the US, dollar-printing by the Fed triggers a broad risk-on mood that pushes the greenback lower. These reaction functions are a win-win for the euro.
3) Political certainty for a change
The US elections are over and there is a decisive winner – Joe Biden. While outgoing President Donald Trump continues crying foul, his attempts at overturning the elections are futile and investors are pricing out concerns about a contested election. Moreover, the nomination of Janet Yellen as Treasury Secretary is also reassuring. The former Fed Chair supports fiscal stimulus but is pro-trade.
Another potential political development is an upcoming Brexit deal. At the time of writing, the EU and the UK have entered a "tunnel" – intense talks that are set to result in a written accord. Even without an imminent deal, Brexit will soon be over.
After years of uncertainty, the mix of political hope, large stimulus and an upcoming solution covid all boost sentiment and weigh on the greenback.
EUR/USD big levels to watch
Euro/dollar has surpassed 1.2050 at the time of writing. It is already eyeing 1.2080, which was a temporary cap in late 2017. The next level to watch is 1.2150, which provided support around April 2018. More stubborn resistance is at 1.2210, which cushioned the currency pair more than once in February and March that year.
Further above, there is little resistance all the up to 1.24, which held EUR/USD down before the crash in the spring of 2018. That year's peak of 1.2550 is the upside long-term target.
Support awaits at the previous 2020 high of 1.2010, followed by 1.1920 and 1.18.
More GBP/USD Three reasons to expect a sustained Santa rally for sterling
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.