EUR/USD set to advance above 1.2060 as fundamentals allow for further gains

EUR/USD has been rising as markets seem to have forgotten Treasury Secretary Janet Yellen's comments on potentially higher interest rates and are rising again. In addition, America's supply chain issues leave room for more gains, Yohay Elam, an Analyst at FXStreet, reports.

See: EUR/USD to drop to 1.19 in the next month amid inflation debate – Rabobank

Concerns about overheating of the US economy have subsided, leaving room for lower rates

“Investors have refocused on messages from Federal Reserve officials, who stick to the dovish message that inflation is transitory and that the economy has a long way to go. The data suggests that a shortage in skilled workers and bottlenecks in supply chains could cause prices to rise. However, these are supply issues, not demand ones – therefore ‘good problems ‘to have.” 

“The imbalance between supply and demand may result in another outcome – less production rather than higher prices. If the economy adjusts by slowing down, that implies the Fed can continue buying bonds at $120 billion/month for longer. The dollar has more room to fall.”

“The vaccination picture is shifting in favor of the euro. The old continent is ramping up its immunization effort, with around 30% of Europeans already having received their first shot. The US is still ahead with 45%, but the gap is narrowing.” 

“Euro/dollar has topped the 100 Simple Moving Average on the four-hour chart and momentum has flipped to the upside – both bullish developments. It is still below the 50 SMA , which is the first resistance line, at 1.2060.”