EURUSD Knocked Down from 1.19 – Can It Climb Back?

Summary:

EURUSD rejected above 1.19 on a weak U.S. stock market reaction. Can it climb back above despite dynamic resistance and strong fundamentals?

The EURUSD pair is at an interesting crossroads from both a fundamental and technical perspective. On the one hand, the technical picture shows the pair has been rejected at dynamic resistance. On the other hand, the fundamentals point in favor of the U.S. dollar since most European economies are in lockdown mode.

And yet, the EURUSD trades with a bid tone. Since July, every move lower has been bought aggressively, mostly because the pair enjoys a positive correlation with the U.S. stock market. Can it be that the only way for the EURUSD to move lower is via lower stocks? If this is true, then yesterday the markets offered us a glimpse into what may trigger a lower EURUSD as the stock market corrected.

COVID-19 Positive Vaccine News Failed to Help EURUSD

The trading week started with a bang. On Saturday, Joe Biden won Pennsylvania and became the new U.S. President. If this was not enough for the markets to cope with, yesterday, we found out that the new Pfizer-BioNTech vaccine shows results beyond the most optimistic scenarios.

How did markets react? The stock market had one of the best days in a long time. Not everything surged, but some sectors did. For example, European banks traded at one point up 14% on the day. Ibex, the Spanish index, closed the day with its biggest gain in over a decade. At the same time, the EURUSD pair knocked at the 1.19 door – only to be rejected. How come? Once again, the answer comes from the U.S. stock market. It did not hold to all its gains, and, in some cases (i.e., Nasdaq 100), it traded with a bearish tone. As such, the EURUSD lost a hundred points and consolidated ever since.

EURUSD Dynamic Resistance

The technical picture points to a bearish scenario on the EURUSD pair. However, the wild card remains the U.S. stock market. Bears may want to sell against the 2020 highs and target the measured move of the head and shoulders for a risk-reward ratio of up to 1:2.