EUR/USD hit 1.20 on the last trading day before bouncing off the strong psychological resistance level. This is due to further dollar weakness alongside investors pricing in aggressive quantitative easing from the Fed outpacing the European Central bank. The EUR/USD is up around 2.3% this month.
Moderna is reported to seek expedited vaccine clearance for its Coronavirus vaccine in the United States and Europe after it was shown that its Vaccine was highly effective in preventing covid-19 with no serious safety problems. It is stated that Moderna will apply for an emergency use authorization in the United States and Conditional marketing authorization in Europe. However, the US FDA still needs to scrutinize the data in a public meeting on December 17th, making a vaccine available to the public before the end of the year unlikely.
As stated above, investors are pricing in that the Federal Reserve will outperform the European Central Bank regarding stimulus in the long term. So far, the ECB’s 1.8 Trillion Euros support for the European economy is slightly less than the Federal Reserve’s 3.2 Trillion Dollar support for the American Economy.
There are hints that the Federal Reserve will ease up on the quantitative easing, with Fed officials stating that they are planning to provide more guidance on their bond-buying strategy “fairly soon” and that “Many participants judged that the committee might want to enhance its guidance for asset purchases fairly soon,” according to the meeting minutes published by the Fed earlier in November.
In a rare occurrence, current Treasury Secretary Steven Mnuchin’s announcement that he would allow certain central bank emergency lending facilities to expire at the end of the year and that the Funds backing the program to be returned to the Treasury was met with criticism by Jerome Powell, which did not agree.
However, the ECB is not done yet. With most of Europe still under lockdown, many analysts predict their bond purchase program to be extended in December, with some analysts predicting that they will push for more stimulus.
Macro Valli, head of macro research at UniCredit, stated that “A boost and extension of the Pandemic Emergency Purchase Program (PEPP) is now a done deal, and we also see a high likelihood that the current favorable terms of the Targeted longer-term-financing operations (TLTRO)… will be extended.”
The last factor, Brexit, is slowly chugging along, taking into account the state the UK and Europe are currently in regarding the Coronavirus. Brexit officials stated that Fishing rights are the last Brexit obstacle that is yet to be figured out.
Angela Markel noted that time was running very short of reaching a deal, and some EU member states are growing impatient. “Some member states are now becoming unsettled. There’s not much time left. We hope that these talks will come to a happy ending. We don’t need an agreement at any price. We want one but otherwise, we’ll take measures that are necessary. In any. Case a deal is in the interest of all.”
Tick all the boxes regarding Brexit, the Vaccine, and the Quantitative easing, and we should see the EUR/USD blast past 1.20.