- The EUR/USD has risen for the past three consecutive weeks because of the weaker dollar.
- The dollar has been on a sharp downward trend because of the latest vaccine and US elections.
- A technical analysis shows that the pair will likely break-out in December.
The euro is heading towards its third straight week of gains against the US dollar. The EUR/USD pair has risen by more than 2.60% in November.
Dollar weakness
The euro has mostly rallied because of the relatively weak US dollar. Indeed, the greenback weakened against all major currencies in November. The dollar index, which is an important gauge of its performance fell by more than 1.80% and reached its lowest level since September this year.
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The dollar declined because of two primary reasons. First, hopes of a Covid vaccine led to improved sentiment about the global economy leading to a risk-on sentiment. That led many investors to shift their resources from safe currencies to relatively riskier assets. Indeed, the riskier emerging market currencies like the Turkish lira and South African rand also soared.
Second, the dollar declined because of the results of the American election. In November, Joe Biden became the president-elect, making Donald Trump a one-term president. As a result, investors started to price-in a more engaged United States, which is a different approach from Trump’s America First policies.
For example, analysts expect that Biden will strive to improve relations with the European Union and do away with the conflict in the Trump administration.
What next for the euro?
December will be a pivotal month for the EUR/USD price. For one, we will know whether the EU and the United Kingdom will reach a Brexit agreement. That’s because, by law, the UK will leave the European Union by December 31st. An agreement between the two sides will be a positive thing for the euro because it will mean less trade disruptions.
Traders will also be focusing on the rising number of Covid infections in most European economies. Indeed, analysts believe that the cases will rise as most European countries relax lockdown measures during the holiday season. On a positive note, the bloc will be among the first regions to start Covid vaccinations.
Focus will also be on the European Central Bank (ECB), which will deliver its decision on December 10. Analysts expect the bank will leave interest rates and the quantitative easing policies unchanged.
EUR/USD technical outlook
On the daily chart, we see that the EUR/USD price has been in a strong upward trend recently. It is trading at 1.1966, which is slightly below this year’s high of 1.2012. The price is also slightly above the 25-day and 15-day exponential moving averages while the Relative Strength Index (RSI) has continued moving up.
Therefore, I predict that the pair will break-out above 1.2012 in December. If you agree with this thesis, you can buy the pair from a leading high leverage forex broker.
This trade will be invalidated if the price manages to move below the psychological level at 1.1800. If that happens, it will be a sign that there are more sellers in the market.
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