EURUSD fell sharply on Monday as new Covid headline weighed on general market mood. The following 21 December EURUSD Elliott wave analysis shares some insights.
December 21, 2020/ AtoZ Markets – Over the weekend, the UK government announced that it discovered a new strain of Covid which is 70% more contagious and is ‘out of control’. As a result, the government cut down some transportation means especially flights and placed higher level of restrictions on the capital city – London. Early on Monday, fresh headlines came with list of countries cutting down flights to or from the UK. As a result, the market mood went sour early on Monday.
Fears that business activities and celebrations during the festive periods will suffer, are on the bounce and will become a major concern for the market. Just last week, Covid vaccines were rolled out in the UK and the US finalizing on its next stage of fiscal stimulus to support economic recovery as the vaccines hopefully cuts down the pandemic. This week so far, the mood has changed.
Risk drivers in the week ahead
The US congress, on the other side of risk sentiment, agreed on a $900 billion stimulus package. The market seems to have priced this in. Later in the week, banks will go on the Christmas break and the government institutions and trading houses will close for the year. Less liquidity and volatility is expected in the second part of the week. This week, the major risk concern will still center around Covid & Vaccines, stimulus and Brexit. On Tuesday, we have the US quarterly GDP report.
The safe-haven dollar, as a result of the current risk sentiment, bounced against its major peers on Monday. EURUSD, on the other hand, fell to 1.213 before the current retracement above 1.22 – more than half of the Monday’s early decline. The long-term trend remains bullish and the currency pair is still around its 30 months peak. EURUSD will most likely continue the bullish trend once the current dip ends – should most probably test 1.205-1.1.21.
21 December EURUSD Elliott wave analysis
We can identify a bullish impulse wave pattern since March. This wave development can guide us to when and where we would be expecting a big bearish correction. With the 21 December EURUSD Elliott wave analysis chart above, its seems that the price has not yet hit the top. Wave (4) ended at 1.16 and wave (5) has developed from there. However, wave (5) has only completed sub-wave 1-3 so far. We can therefore call the current dip a wave 4 of (5). At 1.2011-1.2065, wave 4 could find support for fresh wave 5 0f (5) bullish opportunity toward the critical 1.2455 as we have explained in the last update.