FX.co ★ Market optimism pushes EUR/USD pair up. Dollar retreats, and euro intends to consolidate its success

In the outgoing year, central banks and governments of the world's largest countries have resorted to unprecedented measures of monetary and fiscal support, against the backdrop of the pandemic. The main beneficiaries of which were the stock markets.

In particular, the S&P 500 index was able not only to recover from the March collapse but even to grow to record highs.

At the same time, the US dollar, whose money supply has increased by $3.5 trillion since the beginning of the pandemic, has depreciated against the euro by about 15%.

From March to December, the single currency won back most of the positions lost over the past almost two years.

The EUR/USD pair has remained bearish since reaching 1.2500 in February 2018. In March of this year, it reached a multi-year low near 1.0650. The subsequent growth returned the pair to the highs of April 2018 above 1.2200.

The euro has become one of the strongest currencies in the Big Ten this year and is still in demand for a number of reasons.

First, the single currency is expected to benefit no less than the pound from a trade deal between the European Union under Brexit, as a breakdown in negotiations would undermine economic activity in both regions.

Second, the strict quarantine measures taken by the authorities of France, Italy, Spain, and the Netherlands seem to have begun to bear fruit in the form of smoothing the COVID-19 incidence curve in these countries. A similar improvement in the epidemiological situation can be expected in Germany.

"The EUR/USD pair has confidently overcome the resistance around 1.2000 and looks set to gain good support for potential moves towards 1.3000 in the first quarter of 2021," Westpac strategists said.

"The EU is now set to implement its Recovery Fund. While this process may be lengthy, it will support national fiscal expansion and reduce pressure on the ECB, as well as improve the euro's outlook, providing greater confidence across the region," they added.

US stock indexes, in tandem with which the main currency pair has been moving recently, jumped on Monday, and the protective greenback was again under pressure.

There are only a few days left until the New Year, and there are enough reasons for optimism.

In particular, US President Donald Trump finally signed the law on stimulating the US economy.

"The adoption of financial assistance measures in the US is an incentive for those who are betting on a lower dollar," said strategists at Mizuho Bank.

On Tuesday, the USD index is trading near the lowest levels in two and a half years, trying to form support around 90 points.

The euro is rising against the more reliable dollar for the fifth day in a row. During this time, the exchange rate euro outgrow the USD by 0.6%.

It is assumed that against the background of an almost empty economic calendar for the eurozone this week, the main currency pair will remain at the mercy of the dynamics of the dollar and risk sentiment.

On Wednesday, reports on business activity in Chicago and the US trade balance will be released. On Thursday, a report on applications for unemployment benefits in the country will be published. Markets will be closed on Friday for New Year's Eve celebrations.