FX.co ★ EUR/USD. Conficiting fundamental background between COVID-19 and vaccine

The US dollar index continues to slowly but surely decline, reflecting the ratio of the currency market to the US currency. If the indicator was at the level of 92.7 points a month ago, then currently, it has dropped to the level of 90.74 points. The downward movement is calm, not impulsive, and is accompanied by corrective pullbacks. However, the trend is still clearly visible: the currency market has stopped favoring the US dollar, and is in demand only occasionally, when there is a surge of anti-risk sentiment among traders.

Meanwhile, the overall fundamental background remains optimistic. First of all, this is due to the upcoming mass vaccination against coronavirus in the United States and Europe. This process has already started in the UK, while the EU countries and the States are on standby. Still, the emerging anticipation allows traders to show interest in risky assets, while the safe dollar has shifted from a recent favorite to an outsider.

It should be noted that the COVID-19 situation continues to be difficult in Europe, and even more so in the United States. And although the European lockdowns helped slow down the spread of this virus, it is too early to speak of a stable downward trend. In this regard, key EU countries are extending quarantine restrictions until mid-January, and some of them (for example, Switzerland) are significantly tightening lockdown conditions. In turn, Germany, Italy and France lead the anti-records in terms of the number of new cases of COVID-19.

As for the United States, the situation looks even more difficult. Yesterday, more than 192 thousand new COVID-19 cases were identified, and this is not unusual. All over the past week, US daily growth in the number of cases fluctuated in the region of 190-200 thousand. The governors of California and New York have already warned that hospitals in these regions will face a crisis soon, in the form of shortage of beds, ventilators, doctors and medical personnel.

All the above information is remarkable in the currency market and does not provoke an increase in anti-risk sentiment. For example, at the start of the second wave of coronavirus globally in early autumn, such news reports pushed the US currency up throughout the market. A similar trend was observed when European countries began to introduce quarantine. The US dollar proved to be useful as a protective instrument or as a kind of "safety island".

However, we are seeing a different picture this time. COVID-19 continues to set anti-records and close countries to quarantine, but the USD no longer benefits from the current situation. The negative news flow regarding the spread of this virus is overlapped with news about the vaccine against it. Moreover, the largest pharmaceutical companies reached the final stage of their development almost simultaneously, so the information space is now filled with news about vaccines, their certification, effectiveness, supply plans, and so on. Such information contributes to the growth of risk sentiment in the currency market.

Yesterday's news is an example of this. It became known that the US Sanitary Inspection Agency recognized the vaccine of the German pharmaceutical company BioNTech and the American Pfizer as safe. The regulator said the results of the clinical trials did not raise any safety concerns that could preclude an emergency product approval. Moreover, the FDA stressed that the vaccine provides significant protection after the first dose. This means that the US regulator has approved the vaccine, indicating that the process of mass vaccination in the States can start in the next few days. It also became known that the vaccine manufacturers (BioNTech and Pfizer) are working on a new version of the drug, which is not necessary to be stored at a temperature of -70 degrees – it is currently the main disadvantage of this vaccine.

At the same time, today's news that the vaccination process has already started in Britain, and Europe is at the final stage of drug certification supported this. According to representatives of the European Commission, the first vaccines against coronavirus can be delivered to EU member states in three weeks. All countries that participate in the joint procurement of the European Union will also receive the vaccine at the same time.

Thus, the general news flow is "black and white", which means it opposes each other. On one hand, the number of COVID-19 cases and lockdowns are rising, while on the other hand, the availability and the process of the vaccines against COVID-19 are starting. Judging by the dynamics of the dollar and risky currencies, traders remain optimistic, while ignoring the warning signals.

If we talk directly about the EUR/USD pair, the main upward target is still the level of 1.2200 (upper line of the BB indicator on the daily time frame). It is advisable to consider long positions by the end of tomorrow, since the ECB's meeting will be held and the data on the growth of US inflation will also be published.

These fundamental factors can provoke a deeper corrective pullback (main risk in this context is associated with the ECB). But if we generally talk about medium-term and long-term prospects, then the upward trend remains in force. Therefore, opening longs with the above-mentioned target can be considered on price downturns.