EUR/USD adds to recent losses and drops below 1.1700, looks to Lagarde

  • EUR/USD trades on the defensive below the 1.1700 level.
  • German 10-year yields trade closer to -0.20%, last seen in July.
  • ECB’s C.Lagarde speaks later in the European afternoon.

The selling pressure around the single currency remains well in place and now drags EUR/USD to fresh lows near 1.1680 on Monday.

EUR/USD looks to dollar, ECB

EUR/USD loses ground for the second session in a row and re-visits the sub-1.1700 region at the beginning of the week.

The firm note in the greenback keeps putting the pair and the risk-associated galaxy under extra pressure, all against the backdrop of the intense selloff in the global bond markets, in particularly following the FOMC event and the Powell’s press conference last Wednesday.

No impact on the FX space of the German elections on Sunday, which will likely see protracted negotiations between the winner party, the SPD, the Greens and the liberal FDP party in order to form a coalition government.

The single currency derives extra downside pressure from Friday’s lower-than-expected Business Climate in Germany for the month of September, as per the IFO survey. This result adds to previous retracements seen in the flash PMIs and Economic Sentiment, among others, almost confirming the loss of momentum in the economic recovery.

In the domestic docket, the ECB’s M3 Money Supply expanded 7.9% in the year to August and Private Sector Loans rose at an annualized 4.2%. Additionally, Chairwoman C.Lagarde and Board member F.Panetta are due to speak.

Across the pond, Durable Goods Orders will take centre stage followed by the Dallas Fed Manufacturing Index and Fed-speakers.

What to look for around EUR

EUR/USD remains under pressure and puts the 1.1700 level once again to the test at the beginning of the week. The firm sentiment surrounding the dollar is expected to persist for the time being and particularly now that the Committee sees higher rates in 2022 and the QE tapering process kicking in “soon”. In the euro region, the loss of momentum in the recovery, as per some weakness seen in key fundamentals, continues to undermine the mood around the shared currency.

Key events in the euro area this week: ECB’s Lagarde speech (Monday) – ECB Forum in Sintra, Germany’s GfK Consumer Confidence, ECB’s Lagarde speech (Tuesday) – ECB Forum in Sintra, final Consumer Confidence, ECB’s Lagarde speech (Wednesday) – German labour market report, German September flash inflation figures (Thursday) – German Retail Sales, final August PMIs, EMU preliminary inflation figures (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.18% at 1.1698 and faces the next up barrier at 1.1755 (weekly high Sep.22) seconded by 1.1784 (55-day SMA) and finally 1.1845 (weekly high Sep.14). On the other hand, a break below 1.1683 (monthly low Sep.23) would target 1.1663 (2021 low Aug.20) en route to 1.1602 (monthly low Nov.4 2020).

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