The euro/dollar pair is approaching the price highs this year amid a narrow market and an almost empty economic calendar. Here, general political fundamental factors establish the mood for trading, which determine the level of market interest in anti-risk or, on the contrary, risky assets. The US dollar, as the main protective instrument, depends on traders' degree of nervousness. As an example, the indicated currency was in high demand last week amid high-profile events around Brexit. Following the signing of the historic deal, traders began to take profits, which is why the dollar's position strengthened again throughout the market.
However, the situation has changed this week. The overall fundamental background is mostly positive, while the interest in protective assets has declined markedly. In conditions of low liquidity, traders favor the euro, slowly getting rid of the US currency. The news flow is still contributing to the growth of EUR/USD.
If we talk about American events, then it is necessary to highlight several news feeds. First, Donald Trump signed a stimulus package yesterday to support the US economy with a total volume of $ 900 billion, previously approved by Congress. Earlier, he intended to return the bill without a signature to Congressmen, calling the proposed document a disgrace. The President was outraged by the amount of the one-time subsidy. The compromise bill includes $ 600 in aid to those Americans affected by the pandemic. This amount is half as much as in the first stimulus package, so the head of the White House called it ridiculously low and demanded that it be increased to two thousand dollars. Last Friday, Trump voiced his outrage, allowing dollar bulls to show character again. However, this fundamental factor was only temporary. Despite his threats, the President did not veto the bill and signed it without any additional comments.
In addition, he lost another battle on the legislative field yesterday. The House of Representatives of the Congress overcame the president's veto, approving the country's draft defense budget for next year twice.
Out of 435 members of the House of Representatives, 322 congressmen voted for overcoming the presidential blocking, while 87 were against it. It should be noted that the Democrats have 233 mandates in the Lower House of Congress, that is, many Republicans voted against the presidential decision.
Many experts believe that the Senate will similarly overcome Donald Trump's veto. This fundamental factor is quite symbolic in the currency market. According to experts, the current re-vote with overcoming the veto is the first during Trump's presidency (although he has blocked bills nine times over the past 4 years). Amid his threatening statements, the currency market participants positively received the unanimity of congressmen. The anti-risk sentiment declined again, so the US dollar was hit by massive sales. The euro/dollar pair, in turn, is heading to this year's high, which is located at 1.2277.
On the other hand, European events also contribute to the growth of the EUR/USD pair. In particular, the EU permanent representatives unanimously approved the temporary application of the trade and cooperation agreement between the EU and the UK yesterday. It should be recalled that the European Parliament failed to ratify last week's trade deal between London and Brussels this year. Therefore, the European side agreed to apply a special legal mechanism that would allow the agreement to be implemented as early as January 1, 2021, that is, before the ratification by the European Parliament. Tomorrow, December 30, the British Parliament is expected to approve the deal. Most experts agree that this procedure is just for formality, since most of the Conservative MPs are supporters of Boris Johnson. The deal will most certainly be approved, even considering the internal opposition. The leading political observers are convinced of this.
The so-called "coronavirus factor" also provides indirect support to the euro. In particular, the focus is on the measures taken to combat the pandemic. On December 27, the EU countries began a campaign for a large-scale vaccination against COVID-19. This resulted in millions of doses of drugs beginning to arrive in the largest logistics centers of the EU. Countries in the EU such as Hungary, Germany and Slovakia have started vaccination. Spain and Bulgaria started vaccinating people as well last December 27, while Belgium and Luxembourg started from December 28. In turn, the Netherlands will start from January 8. Amid such trends, EUR/USD traders became optimistic, and this fact allowed the pair's buyers to develop an upward offensive.
There is no doubt that any trading decisions made in the pre-New Year week are associated with risk – the market sometimes behaves inadequately in conditions of low liquidity and profit-taking. But in general, the fundamental outlook is in favor of the euro, that is, in favor of long positions on the EUR/USD pair. In the short term, we can talk about reaching the resistance level of 1.2277 (two and a half year high reached during the third week of December). The main upward target is the round level of 1.2300 – the upper line of the Bollinger Bands indicator on the daily time frame.