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#1 30-12-2020 08:18:17

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: what's next for the pair, $1.25 or $1.15?

EUR/USD: what's next for the pair, $1.25 or $1.15?


The EURUSD started the last trading week of 2020 with a bumpy tone. As soon as the markets opened on Monday, it lost no time and began to threaten this year's highs.

This time of year (between Christmas and New Year) is one of the most delicate of all. With few banks open and very few active institutional players, the market may not move at all. Once again, U.S. equity futures hit highs at Monday's opening, triggering risk taking when Donald Trump signed the virus bill.

While the USD appears to be on its knees, the EUR/USD pair reflects not only the weakness of the dollar but also the strength of the euro. Other Euro pairs are also performing better, so it can be said that the euro is strengthening in all areas.

What will next year bring first - $1.25 or $1.15?

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$1.25 Possible but the ECB is watching

In August, the ECB intervened due to fears of a high EUR/USD exchange rate. From then on, concerns about the strength of the exchange rate have made their way into every ECB statement and press conference. However, the rate rose above the $1.20 level that had justified the initial verbal intervention. This is arguably for good reason.

There is little or no political risk in the euro area next year. Moreover, a Brexit agreement is in place, eliminating trade friction between the EU and the UK. In addition, the EU Recovery Fund reflects a solidarity never seen before. Finally, EU vaccination show unity at the European level - with countries acting and fighting the virus situation together.

Naturally, the currency should reflect all these macroeconomic developments. If we add here the current account surplus, we should not be surprised to see $1.25 sooner rather than later.

The only problem with the factors mentioned so far is that they were the same when the EUR/USD traded at $1.15 earlier in the year, or even at $1.18. Therefore, the big question remains: how excessive is the rise of the EUR/USD?

The rate reflects both the strength of the euro and the weakness of the US dollar. For it to reverse, either the US dollar will have to change course, which means that the US stock market is close to a peak, or the euro will change course for a reason independent of the USD.

By the time the markets open next week, the new year will already have begun. The real flows will start to position themselves for the year, and we will see the true nature behind the recent strength of the EUR/USD.

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"Anything worth having is worth going for - all the way." - J.R. Ewing

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