- EUR/USD has been trying to recover after the Delta-related dive.
- Concerns about covid in the US and Europe could push the pair to new lows.
- Tuesday's four-hour chart is showing bears are in control.
Reflation rethink – markets are gripped by uncertainty about the global economic recovery and Delta fears outweigh inflation ones. In this environment, the safe-haven dollar is the main beneficiary. While the euro also serves as a second-rate funding currency – and holding up relatively well – it could resume its decline.
Stock markets are attempting to bounce on Tuesday, allowing the safe-haven dollar to take a breather from its gains. Some investors may also reach the conclusion that a drop in global demand would lower inflation expectations – which have boosted the greenback last week. The fall in oil prices is the first sign.
However, while infections stand out in Spain, Portugal, the Netherlands, Indonesia and the UK – running "Freedom Day" in London – they are moving up in America as well. The increase in several European countries has been running for longer and is matched by a rapid vaccination campaign. In the US, immunization is stuck.
EU jabbing has caught up with the US:
Source: FT
Do lower inflation and a stalled vaccination campaign mean a weaker dollar? Not so fast. The greenback is the currency of choice in times of trouble, perhaps challenged by the yen, but leaving the euro far behind.
Moreover, even if the Federal Reserve refrains from moving forward with tapering its bond-buying scheme, the old continent is one step ahead – it could extend its euro-printing program. The European Central Bank convenes on Thursday for the first time after announcing its strategic review, which is less strict on inflation.
Price rises are another field where the dollar has an advantage. The eurozone headline Consumer Price Index edged down to 1.9% in June, while it rose to 5.4% in the US.
Overall, the current calm in markets may prove to merely be a dead-cat bounce for EUR/USD.
EUR/USD Technical Analysis
Contrary to GBP/USD, the Relative Strength Index (RSI) on the EUR/USD four-hour chart is above 30 – thus outside oversold conditions. Momentum remains to the downside and the currency pair trades below the 50, 100 and 200 Simple Moving Averages.
Bears are in control.
Support awaits at the new July low of 1.1764, followed by 1.1740, 1.1717 and the all-important 1.17 line which was the low point in March.
Resistance is at 1.1825, the daily high and where the 50 SMA hits the price. It is followed by 1.1850, 1.1885 and 1.19.
Delta Doom is set to storm America, the dollar could emerge as top dog
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