Morgan Stanley analysts foresee 2021 as one more big year for liquidity injection and asset price inflation. “On our projections, G10 central banks will inject another US$2.8 trillion of liquidity next year – just in their government bond purchases. That’s more than twice the amount of liquidity central banks injected in any year prior to the one drawing to a close,” Morgan Stanley analysts said.

As such, the dollar could see a continued sell-off in the coming year 2021. The US dollar has further to fall against a host of G10 and emerging market currencies next year, and the safest investment of all – US Treasuries – will struggle to make ends meet,” the investment bank said.

Macro factors such as coronavirus vaccine optimism, expectations for a global economic recovery in 2021, the fading influence of trade protectionism, economic nationalism, and the European Union’s recent agreement on the 2021 budget favor further gains in the EUR. The dollar side of the story looks weak as well, as noted by Morgan Stanley which is noted above.

On the other hand, European Commission President Ursula von der Leyen said Sunday that Brexit trade talks with the U.K. will be extended beyond Sunday’s deadline, adding that “we think it is responsible at this point to go the extra mile.” Von der Leyen spoke with British Prime Minister Boris Johnson via telephone on Sunday before releasing a joint statement. Both have now mandated their negotiating teams to continue their work.

Media reports from the U.K. suggested there had been some progress in talks in recent days, despite the lack of a breakthrough. No new deadline for the discussions was set by the EU and U.K. leaders.

However, Germany’s decision to impose a hard lockdown during the Christmas holidays and potential weak PMIs could play impact negatively in the short-term. The Eurozone, German PMI numbers are scheduled for release this week which can change the trend.

EUR/USD 4 Hour Chart:

Support: 1.2090 (S1), 1.2069 (S2), 1.2032 (S3).

Resistance: 1.2147 (R1), 1.2184 (R2), 1.2205 (R3).

In the current prevailing atmosphere which is in favor of Euro against the dollar, we expect a bullish trend for EUR/USD.