EUR/USD: Here’s why the euro is in an unstoppable rally

Written by: Crispus Nyaga
January 6, 2021
  • The EUR/USD pair rally continued today after the Democratic party won the two Senate seats.
  • Investors believe that they will provide more stimulus especially after the weak ADP jobs data.
  • The data showed that the economy lost more than 123k jobs in December

The EUR/USD pair is in its third day of straight gains as forex traders react to the outcome of the Georgia by-election. The EURUSD is trading at 1.2335, which is the highest it has been since April 2018.

EUR/USD
The EUR/USD pair has been on a sharp upward trend

More stimulus ahead

The EUR/USD is rising as investors start pricing-in more stimulus in the United States. This is after the two Democratic contenders managed to beat the Republican contenders in the Georgia by-election. This means that Chuck Schumer will become the Senate majority leader.

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Democrats have vowed to push ahead with a new more aggressive stimulus package in their bid to support the economy. The current session of the House of Representatives has already passed a package that will include $2,000 checks to individuals. 

The weak ADP employment data released today could hint at another stimulus. The company said that the economy lost 123,000 jobs in December. That was the first time it did that since April last year.

Still, some experts believe that the checks will overheat the American economy. They argue that the funds should instead be used for other projects like infrastructure. 

Meanwhile, investors are bracing for more regulations, higher corporate taxes, and higher minimum wage. 

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EU weak economic data

The EUR/USD pair is also reacting to the overall weak services PMI data. According to Markit, the services PMI rose from 41.7 in November to 46.4 in December. This figure was lower than the median estimate of 49.9. The report said that all countries in the Eurozone except Ireland saw a decrease in business activity. 

The composite PMI rose from 45.3 to 49.1, driven mostly by the manufacturing sector. The key concern for Europe is that the number of coronavirus cases has continued to increase in most member states. As such, the vital services companies like restaurants, hotels, and tourism will continue weakening even as the countries implement their vaccines. The report said:

“While the data indicate a renewed decline in eurozone GDP in the fourth quarter, the downturn appears to have been far less severe than seen in the second quarter, thanks to sustained strong manufacturing growth, rising global trade and lockdowns having been less onerous.”

EUR/USD technical outlook

EUR/USD
EUR/USD technical analysis

On the weekly chart, we see that the EUR/USD pair has been on a strong rally in the past few months. It remains above the short and long-term moving averages. Also, it is slightly below the April 2018 high at 1.2562, which is the next vital resistance. 

The Relative Strength Index is also approaching the overbought level. As you can see in our free forex trading course, this is a sign that the pair will continue rising before having a pullback.