The EUR/USD bulls managed to recover some of their losses for the first half of January due to the calls from the new US administration for the adoption of the $1.9 trillion fiscal stimulus package, Janet Yellen's unwillingness to contribute to a weakening dollar, and moderate optimism from the ECB. The US dollar lost its gains after being deprived of support from the growing bond yields, while the euro failed to take full advantage of the favorable situation.

The steady rise in global risk appetite is causing the USD to sink, but the single European currency is also sinking, although less rapidly than its main competitor. Slow vaccinations in continental Europe, extended lockdowns, and heightened risks of a double recession are keeping EUR/USD buyers from spreading their wings. In January, private sector business activity in the eurozone fell to 47.5 (below 50 indicates a contraction in GDP), and the purchasing managers' index for services fell at the fastest pace since May.

Vaccination dynamics in Europe and the USA

Investors who relied on rapid vaccinations and the rapid growth of the currency bloc economy in the first half of the year are beginning to doubt the realism of their forecasts and are closing longs on EUR/USD. Alas, it is difficult for the US dollar to catch hold of something. In early January, the dollar was supported by the rising yields on US bonds. The market rightly believed that Joe Biden's new $1.9 trillion stimulus package would boost emissions. The Federal Reserve will continue to buy assets for $120 billion. This alignment should promote the sale of securities in the secondary market and increase rates on them. Unfortunately, the rise in bond yields turned out to be a temporary phenomenon. As soon as the indicator went down, the US dollar weakened.

Dynamics of the difference between the issue of US bonds and the volume of purchases of Fed assets

Stronger reasons are needed to strengthen the dollar. They may be found in trade wars or problems with the adoption of new incentives from Joe Biden by Congress. The Senate is divided, with Kamala Harris having a small majority in the hands of the Democrats, but the Republicans are not going to throw out the white flag. They still control the commissions and demand concessions from their opponents when voting. According to the Petterson Institute analysis, in 2020 China fulfilled only 58% of its obligations to the United States on the trade deal, while Janet Yellen's aggressive rhetoric towards China suggests that the new head of the White House is not going to trade a carrot for a carrot.

On the other hand, the Fed meeting is unlikely to please the bears on EUR/USD. The Fed is likely to focus on its willingness to hold rates near zero for a long time and implement QE, at least until the end of 2021.

Technically, the breakout of the resistances at 1.221 and 1.224 will be a buy signal with a 161.8% target on the AB = CD pattern in the hope of a recovery in the EUR/USD upward trend. On the contrary, the inability of the pair to hold above 1.2125 and 1.208 is a sure sign of bulls' weakness. In this situation, sales will be relevant.

EUR/USD daily chart