KTM FX Weekly: EURUSD enters a period of consolidation, trend is clearly up.

• New vaccine news, new rally
• Cyclical currencies outperform

The common currency scaled slightly higher on Monday as another vaccine news. Good trail results by another American multinational company drive the risk sentiment higher on Monday. The brand new started on a new hope of normal life sooner than later.

Vaccine 2.0

After last week’s Pfizer announcement, Moderna, an American biotechnological company, comes up with a new vaccine that protects against COVID-19, which shows nearly 95% protection. Moderna’s trail result shows more efficiency than Pfizer; as a result, shares of Pfizer slid more than 3%. We still believe the latest two vaccine news is welcome, but near-term challenges remain.

FX

Our subject currency was mixed last week. The EUR was down 1.30% against the Kiwi dollar, followed by 0.75% against the pound. On the flipside, EUR outperformed against the commodity currencies like AUD and CAD by 0.30% each. Against the safe-havens, the common currency rallied a percent against the Swiss Franc and 0.75% against the Yen.

Bonds

In line with the renewed optimism, bond yields spiked last week. The US 10-year Treasury yield rose from 0.82% to 0.89%, almost hitting 1.00% for the first time since March at one point. On Monday, the UST 10yr yield little changed at 0.91%. Their 2-10 rate curve is little-changed at +73 bps, their 1-5 curve is marginally steeper at +30 bps, with their 3m-10-year curve also little-changed +81 bps.

Amid improving the risk sentiment, the safe havens in the FX land lost some shape. The CHF and JPY are trading lower across the board. Besides, the dollar is remaining weaker amid massive risk-on.

COVID-19

Despite the latest two vaccine better trails, daily COVID-19 cases are climbing up day by day in many parts of the world. Especially in Belgium, France, Germany, Spain, Sweden, and Italy, and in the US. Daily COVID numbers in Europe suggest Pfizer’s vaccine news could not alter Europe’s economic situation immediately. The outlook for EUR remains neutral in the week ahead.

In its latest Economic Bulletin, ECB highlighted that the ongoing increases in coronavirus infection rates constitute a headwind to the short-term outlook, and ECB also cited that the EA output will fall again in the fourth quarter.

“Following the unprecedented fall in euro area output in the second quarter of 2020, economic growth is set to rebound in the third quarter, before falling again in the fourth quarter.”

Looking at past week data points, the Eurozone ZEW investor confidence survey weakened slightly in November.

The ZEW Indicator of Economic Sentiment for Germany plummeting 17.1 points to a new reading of 39.0 points compared to the previous month, according to the official report. Having achieved a temporary high of 77.4 points in September 2020, expectations have since fallen by 38.4 points. The assessment of the economic situation in Germany has slightly worsened and currently stands at minus 64.3 points, 4.8 points lower than in October.

In the third quarter of 2020, GDP increased by 12.6% in the euro area and by 11.6% in the EU compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union.

Data preview: Economic calendar includes October CPI figure and November Consumer confidence.

TECHNICAL OVERVIEW

EURUSD should gain on dollar dullness. But as said last week, EUR crosses are offering better risk-reward. With the current massive risk-on sentiment, the EUR could outperform against CHF and JPY. However, volatility is set in as rising cases of coronavirus infections.

Coming to our subject pair EURUSD, the price action is aiming to breach the 1.1900-1.1920 resistance zone. The daily RSI and oscillators are suggesting higher prices will be possible. In this case, 1.2000 and 1.2060 could be possible if the price breakout higher. On the downside, support exists at 1.1750 and 1.1600.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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