EUR/USD kick-starts ECB week around 1.1800, bears in control
|- EUR/USD remains pressured for third consecutive day, retreats towards monthly low.
- Virus concerns challenge economic recovery from the pandemic.
- US data, indecision over Fed’s action adds to the risk-off mood.
- ECB’s forward guidance will be the key amid fresh inflation target.
EUR/USD fades Friday’s bounce off 1.1792, around 1.1805, amid a quiet start to the week’s trading in Asia on Monday. In doing so, the major currency pair remains heavy for the third consecutive day as market sentiment remains sour, putting a safe-haven bid under the US dollar, as traders brace for this week’s European Central Bank (ECB) meet.
US Consumer Sentiment and Retail Sales backed concerns that the coronavirus variant challenges the economic rebound. Also challenging the market’s mood were the details of the figures are the same signaled higher inflation expectations and kept pushing the Fed towards monetary policy adjustments, which the policymakers have been rejecting of late.
Hence, the economic fears and the Fed’s dilemma joins downbeat European trade numbers for May to weigh on the EUR/USD pair the previous day. It’s worth noting that the fears of the COVID-19 strains get stronger in the bloc amid slower vaccinations than in the US and the UK.
Other than the risk appetite, the market’s doubts over how the ECB will be able to dial back the easy money policies amid renewed fears of covid strains and soft economics also please the pair sellers. Furthermore, the Sino-American tension and the EU-US alliance versus Russia, not to forget the EU-UK tussles over Brexit, add to the pair’s downside pressure.
Amid these plays, S&P 500 Futures stays mildly offered, following Wall Street’s downbeat performance the previous day.
Given the lack of major data/events, coupled with the pre-ECB cautious, EUR/USD may well extend the downtrend at a slower pace. However, intermediate pullbacks, due to the ECB’s economic optimism, can’t be ruled out.
Read: ECB: Aligning forward guidance with new inflation target framing
Technical analysis
Sustained trading below 200-DMA, around the 1.2000 threshold, coupled with the lower high bearish formation, directs EUR/USD sellers toward the monthly low near 1.1770. However, the further downside will be tested by a monthly support line near 1.1735.
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