Despite the rapid growth of US stock indices in connection with the victory of the Democrats in the Senate, several attempts of the EUR/USD bulls to break above the base of the 23rd figure were not crowned with success. On the contrary, the unexpectedly rapid rise in the yield of 10-year US Treasury bonds on expectations of additional fiscal stimulus from the "blue wave" suggested that not everything is as clear on Forex as the forecasts indicate.

The consensus estimate of Bloomberg and Reuters experts suggests that the main currency pair will rise to 1.25 in 2021, and rates on 10-year US debt will rise to 1.25%. Probably, the EUR/USD bulls, inspired by the rapid growth of the S&P 500, expected that the first forecast would be implemented almost in January, but our wishes do not always come true. Any trend needs to be corrected, so the fall of the euro to the base of the 22nd figure against the US dollar should not frighten anyone. In fact, the external backdrop remains favorable for the single European currency: economic surprise indices are rising, China's economy is strong, global risk appetite is rising, and vaccination processes are gaining momentum.

Dynamics of the indices of economic surprises

Another thing is that because of the intentions of the Democrats to immediately increase the check per American from $600 to $2000, inflation risks accelerating and the rates of the US debt market rise. This market is clearly lagging behind the others, and the consensus forecast most likely underestimates the risks of a rise in the yield of 10-year securities to 1.75-2%. If such a scenario is realized, it will force the Fed to think not only about curtailing the $120 billion-a-month asset purchase program but also about raising the federal funds rate.

Dynamics of the yield on 10-year US bonds and the indicator of the market for goods and stocks

In my opinion, the start of monetary policy normalization is more likely in the US than in the eurozone, so the potential for a EUR/USD rally is likely to be limited to the 1.25-1.30 mark. The question is when exactly the reversal will occur. Of course, the sale of safe-haven assets amid falling political and geopolitical risks and falling volatility will continue for some time, but it does not begin in the second half to win back the dollar smile theory, whereby the US dollar strengthens amid ahead of GDP dynamics of the USA over world counterpart.

Nonetheless, there is no doubt about the strength of the upward trend for EUR/USD in the short term. The Fed does not think about raising rates, the double deficit (budget and current account) of the US is increasing, and the demand for non-US assets is growing.

Technically, the weekly chart of EUR/USD clearly shows that the growth potential of the main currency pair is not disclosed. Bulls still expect to move its quotes, at least to the target of 161.8% on the pattern AB=CD, which corresponds to the mark of 1.272. In such conditions, rebounds from supports at 1.209 and 1.205, as well as confident assaults on resistances at 1.226 and 1.234 should be used for purchases.

EURUSD, weekly chart