EURUSD jumped over 1.4% last week as the dollar plummeted to a new low. The following 7 December EURUSD Elliott wave analysis shares some technical insights.
December 07, 2020 / AtoZ Markets – The massive risk appetite in December shot the dollar to a new low. Positive developments on vaccines and stimulus were the major triggers as the buck weakened across the board. The Euro-dollar which almost always move in the opposite direction of the DXY rallied to new highs. The currency pair broke above the 1.22 psychological resistance level last week. There seems to be more upside move for this currency pair as positive risk sentiments could continue to weigh on the dollar.
EURUSD risk drivers
Traders will continue to watch for three major risk factors going forward. First, stimulus packages are flowing in again. According to reports, some US legislators will put together a $908 billion legislation for more stimulus package. The Fed has vowed to support the economy even more. If for no other reason, last week employment change came far worse than the market expected. The economy needs to be stimulated with fresh fiscal support and the top guns won’t hold back. The dollar weakness might therefore not have been over yet.
In another risk-supporting update, vaccines will start rolling out this week in the UK. Pfizer, Moderna and other companies with effective Covid vaccines are ready to provide enough doses that will circulate the world and defeat the virus. The US will join the vaccination later this month and others, by late December or January. With stimulus and vaccination, the dollar will most likely plummet further as investors direct funds to riskier assets.
Later this week, the ECB monetary policy might provide some momentum for this pair. The bank is expected to follow in the manner of the PBoC, BoJ and RBNZ to expand their QE packages. This move has given the Euro some strength in recent months after Covid first wave. However, there is the other side where the bank might want to decline further EUR strength over the dollar. This means that further EURUSD rally would be capped.
December 7 EURUSD Elliott wave analysis
In the last update, we suggested further rallies for the EURUSD. As the 7 December EURUSD Elliott wave analysis chart below shows, we can count a bullish impulse wave move from wave 4 at 1.1605. It therefore seems the currency pair is in the last stage – wave 5. Wave 5 might have completed its sub-wave 3 and maybe will do that around 1.225.
The chart above shows a diagonal support just above the 1.2 psychological level. Perhaps, the currency pair will test the level soon or after further rallies to 1.225. In whatever case, the currency pair should fly higher. Buying the dips seems to be the best option now unless a massive decline below 1.19 happens to enforce the start of the medium-term bearish correction.