Risk assets in Europe remained under pressure on Monday, while sovereign debt yield struggled to rebound after the fall on Friday, which indicates that risk-off continues to dominate sentiment and pandemic risk-premium is gradually building up. The risk that the ECB will delay hiking rates and curbing PEPP stimulus in response to new covid wave and associated slowdown takes away upside potential from the Euro and paves the way for new lows in EURUSD.

As for the US, investors' attention remains on events related to the Fed: this is Biden's appointment of a new head of the Fed (Powell's term expires in February 2022) and the release of the November minutes of the Fed meeting, which may provide more information on how the Fed is going to taper asset purchases. In addition, market participants definitely lack information on how the Fed is going to react to the still accelerating growth in consumer prices in the United States and the minutes of the Fed meeting can reduce the uncertainty in this matter.

The dollar index briskly recovered after a pullback from 96.20 to 95.50 and was back above 96 points on Monday. Undoubtedly, risk-off in European markets contribute to the rise of the dollar, and if the situation with covid in Europe continues to deteriorate, and the current inflation trend in the US continues, the dollar index may target the highs of June 2020:

Despite heavy selling pressure on the Euro and plenty of oversold signs the news that Austria announced a full lockdown on Friday and Germany said it would not rule out similar measure sets the stage for more downside in the currency. The news also led to downward breakout of the 1.05 level of EURCHF, which is a key barometer for European asset risk. Bad news from the pandemic front reinforces bearish market view on EURUSD, in which the core underlying idea is widening gap in policy normalization between the Fed and the ECB. There was a lag in the normalization process even without lockdowns as inflation in the Eurozone was expected to slow down in 2022 faster than in the United States. The introduction of lockdowns will increase pressure on the EU’s service sector and boost chances that the ECB may extend the PEPP program beyond March 2022.

EURUSD tested a new low on Friday at 1.125 and nevertheless remains vulnerable to further decline. Break of the level of 1.125 will open the way to the low of the June 2020 - the level of 1.1170. At the same time, if bullish pullback proves to be sustainable, short positions could start to build up near the level of 1.13:

Despite increasing pandemic risks in Europe, virus data show that the UK is doing better than its European counterparts in the new wave, thanks in large part to high rates and levels of vaccinations and accumulated herd immunity. The imbalance of risks, in turn, may lead to a decrease in EURGBP, from the point of view of technical analysis, the 0.83250-0.83 mark looks attractive, from where a bullish rebound can be expected: