EUR/USD continues steady grind higher, still unable to eclipse 50DMA

• EUR/USD has continued to grind higher and looks set to clinch a fifth consecutive day of gains.
• The pair topped out at 1.21495 and again failed to test its 50DMA.

EUR/USD has continued to grind higher and looks set to clinch a firth consecutive day of gains so long as the pair can hold above Wednesday’s close at 1.2117, which it looks like can be easily achievable given the currency pairing currently trades in the mid-1.2130s.

At present, EUR/USD trades with modest gains of about 0.15% on the day, with the gains again petering out a few pips before the pair’s 50-day moving average which currently sits at 1.2154. EUR/USD topped out at 1.21495 in Thursday, which in fairness was still a new high on the week and the pair’s best levels in nearly two weeks. Thursday’s gains have brought EUR/USD back into positive territory on the month, but the pair is still one of the worst-performing G10/USD pairings this month alongside CHF/USD and JPY/USD.

Driving the day

There were no key developments regarding the key themes driving the US dollar and euro on Monday; the US Congress still looks on course to deliver a big fiscal stimulus package (once it has gotten past former US President Donald Trump’s impeachment). Nancy Pelosi, leader of the House Democrat Majority hopes for a deal to be done on stimulus by the end of the month and passed into law by mid-March, in time for unemployment benefits to end.

Meanwhile, as Fed Chair Jerome Powell reminded markets last night, the Fed is set to stay the course with its ultra-accommodative monetary policy for the foreseeable future as its waits for the inflation and labour market to suitably heat up (meeting the Fed’s requirement for policy tightening is likely to take some time!). The fact that weekly US initial jobless claims still reside at historic highs only impresses further to markets and the Fed that there is a long way to go before any tightening occurs. Regarding asset purchases, it looks as there will be no tapering at least through this year, as FOMC Member Mary Daly reminded markets prior to the US open.

Elsewhere, vaccination programmes continue to accelerate in the US whilst cases drop. The European pandemic situation doesn’t look quite as optimistic; lockdown was recently extended for a month in Germany, the bloc’s vaccination programme is crawling forward (although they are doing a better job signing new vaccine delivery contracts), and France is seeing an alarming rise in the prevalence of the more transmissible and deadly variant of Covid-19 that was first found in the UK.

This “divergence” in fortunes seemed to weigh on the euro in the first days of the months, but it appears that the fact that former ECB President Mario Draghi is edging ever closer to clinching a majority in the Italian parliament has given the currency a boost. In the latest positive step towards a Draghi government, members of the Italian Five Star Movement voted in favour of their party partaking in a Draghi run government.

Meanwhile, and also potentially providing EUR with some assistance on Thursday, it seems as though the US and EU are taking positive steps toward de-escalating trade tensions stoked under the Trump administration. The US has not gone as far as outright removing tariffs on European imports that it was awarded by the WTO as part of the Airbus/Boeing dispute, but it has stopped the random rotation of these tariffs across different goods (a technique to inflict greater uncertainty on the other country’s exporters).