The last few sessions have been terrible for EUR/USD bulls, who have had to cope with a firmer US Dollar, news that German GDP growth fell by 5% in 2020, yet another political crisis in Italy and a slow coronavirus vaccine rollout in the EU.
On the bright side, European Central Bank President Christine Lagarde was optimistic, predicting an economic recovery as Covid-19 uncertainty wanes and adding that the EU has all the tools it needs to overcome the crisis. A further flood of money into the perceived safety of the USD also seems unlikely given President-elect Joe Biden’s fiscal plans to stimulate the US economy and continuing monetary stimulus from the Federal Reserve despite talk that it might taper its asset-buying program.
Against this background, a period of stabilization seems likely but after that a further period of weakness cannot be ruled out despite the ECB’s concerns over the exchange rate and inflation – things it has little power to influence.
