At the end of December, investors argued that EUR/USD would rise to 1.25 during 2021. However, at the end of the first quarter, they completely changed their mind. There are many factors in favor of the US dollar. On the other hand, markets can predict a recession only 4 times out of 9. So, there is no guarantee that their predictions will come true this time.

About 3 million people are getting vaccinated against COVID-19 in the US daily. The rate of growth of the US economy is going to accelerate the most since 1983, while Joe Biden is eager to provide the economy with new stimulus packages. Meanwhile, the yield of US Treasuries is rising faster than the one of its foreign peers. Isn't this enough to believe that EUR/USD may fall to 1.15? Judging by the differential of 5-year real swaps between the euro and the US dollar, the main currency pair should be trading near the 1.1 mark.

EUR/USD real 5-year swaps spread

The changes in investor sentiment also played an important role in the fall of the European currency. Previously, when non-commercial traders abandoned their bullish views on EUR/USD, the pair inevitably declined. This is what's happening right now.

EUR/USD and dynamics of traders' positions

Yet, if everything were so simple on Forex, then everyone could earn huge money in no time. The question is who would lose money in this case? In the first quarter of 2021, the US was on track to recovery whereas the eurozone was doing not so well. Will the situation stay the same for the rest of the year? I don't think so.

First of all, Joe Biden made it clear that the new stimulus packages come at a certain price. In particular, he announced his plan to raise corporate tax from 21% to 28% in order to fund a $2.3 trillion aid package based on infrastructure investments. The US Treasury will no longer have to ramp up its bond issuance, so the rally of bond yields could slow down. Secondly, the EU is good at correcting mistakes. The vaccination process in Europe is likely to accelerate in the second and third quarters. Together with warm season and deferred demand, this will create conditions for lifting lockdowns and rapid growth in the EU GDP. Finally, the confidence of the US is beneficial to the export-oriented Europe.

Thus, it is too early for the EUR/USD bulls to give up. Many of their opponents' trump cards have already been priced into the pair's quotes. So the news about the acceleration of vaccination in the EU and (or) the ratification of the European Rescue Fund by Germany can push the euro higher.

From the technical viewpoint, EUR/USD has formed the Wolfe Wave patterns on the daily chart. To enter a long position in accordance with the last pattern marked with black, you should wait for the pair to settle above 1.185 and 1.192. Meanwhile, bears are leading the market. So, you can use the failed attempts to break through the pivot levels of 1.18 and 1.185 for going short in the direction of 1.171 and 1.1645.

EUR/USD daily chart