EUR/USD Analysis: Profit-taking kicks in after EU recovery fund agreement, bullish bias remains

• A combination of factors assisted EUR/USD to gain some follow-through traction on Monday.
• Optimism over a potential COVID-19 vaccine continued undermining the safe-haven greenback.
• The market reaction to an agreement on the EU recovery fund turned out to be ‘sell the fact’ play.

The shared currency started the week on a positive note and remained well supported by expectations of an agreement on the massive EU pandemic recovery fund. This comes amid fresh hopes of a potential COVID-19 vaccine, which drove flows away from the safe-haven US dollar. Oxford University said on Monday that early-stage human trials for its vaccine for the highly contagious disease – co-development with AstraZeneca – showed positive results. This, in turn, assisted the EUR/USD pair to gain some follow-through traction on Monday, marking its sixth day of a positive move in the previous seven.

The pair finally settled near the top end of its daily trading range and popped to the highest level since March 9 during the Asian session on Tuesday. The uptick was sponsored by reports that the European Union has reached a highly-anticipated deal on the €750 billion coronavirus recovery fund – aimed at aiding the region’s worst-hit economies. Given that the optimism has been flowing into the single currency over the past few weeks, the market reaction was pretty much a 'buy the rumour, sell the fact' play.

The pair failed to capitalize on the early uptick, rather witnessed a modest pullback and was last seen trading below mid-1.1400s. As investors digest the latest developments, the USD price dynamics might not turn out to be an exclusive driver of the pair's momentum amid absent relevant market-moving economic releases, either from the Eurozone or the US.

Short-term technical outlook

From a technical perspective, the near-term bias still seems tilted in favour of bulls and any subsequent slide might still be seen as a buying opportunity near the 1.1400 mark. That said, a convincing breakthrough could drag the pair further towards the 1.1330 horizontal support en-route the 1.1300 mark.  Some follow-through selling now seems to pave the way for further weakness towards the 1.1260 horizontal zone before the pair eventually drops to sub-1.1200 levels.

On the flip side, sustained move back above mid-1.1400s will set the stage for a move towards challenging YTD tops, just ahead of the key 1.1500 psychological mark. Above the mentioned level, bulls are likely to lift the pair further towards 2019 yearly swing highs, around the 1.1570 region.

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