- EUR/USD has been struggling to hold onto the 1.18 level amid a risk-off mood.
- Concerns about the Delta variant and rising US inflation could push the pair lower.
- Monday's four-hour chart is showing bears have the upper hand.
Summer fun? Not in financial markets, which have been gripped by fears that could cause volatility and push EUR/USD lower. The highly transmissible Delta COVID-19 strain is spreading rapidly all over the world and threatens to dampen economic growth.
Source: FT
Cases are on the rise on both sides of the Atlantic and mostly affecting the unvaccinated – especially when it comes to severe illness and deaths. In Europe, travel and activity restrictions could weigh on the nascent recovery – and summer holidays.
Moreover, the European Central Bank is also watching the data ahead of its meeting on Thursday, and the ascending infections could bolster the doves – perhaps toward extending the bond-buying scheme. More euros printed could weigh on the common currency.
While the US is also experiencing a surge in covid cases, the effect on the currency could be different, as the dollar is a safe-haven currency. The greenback benefits from inflows in times of trouble.
Another factor giving investors a cause for a pause in rising US inflation. Apart from the higher-than-estimated jump in the Consumer Price Index – 5.4% yearly, highest in 13 years – expectations for future increases are also moving higher. The University of Michigan's Consumer Sentiment Index showed a drop in confidence in July, but that shoppers project prices to rise.
The Federal Reserve is watching these surveys closely to gauge if inflation has taken hold in consumers' minds – something that is beyond a temporary leap in prices related to the quick US reopening. If the Fed inches closer to tapering down its bond-buying scheme, the dollar could rise.
Overall, the risk-off mood in the market is pointing to further falls for euro/dollar.
EUR/USD Technical Analysis
Euro/dollar has been losing its upside momentum on the four-hour chart and remains below the 50, 100 and 200 Simple Moving Averages. Moreover, it has been setting lower lows and lower highs.
Overall, bears are in control.
Critical support awaits at 1.1771, which is July's low. Further down, the next levels to watch date back to early in the year, and they include 1.1740, 1.1717 and 1.17.
Some resistance is at 1.1820, which capped the pair in recent days and then 1.1850, a swing high from last week. Further above, 1.1880 and 1.19 await bulls.
Delta Doom is set to storm America, the dollar could emerge as top dog
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