EUR/USD challenges 3-month lows near 1.1770

The selling pressure around the European currency remains unabated for yet another session and now forces EUR/USD to shed further ground and record new 3-month lows in the 1.1765/60 band.

EUR/USD in multi-month lows

EUR/USD is down for the third session in a row, navigating new 3-month lows and putting the key 2020-2021 support line to the test.

The continuation of the downtrend in spot comes amidst further strength in the buck and the broad-based sentiment favouring the risk aversion, all in spite of the persistent downside pressure in US yields.

In addition, the quick spread of the Delta variant of the coronavirus across the world continues to weigh on the global growth prospects and underpins at the same time the risk-off mood.

Nothing scheduled in the euro docket, while the Bundesbank is expected to publish its monthly report.

Across the pond, the NAHB Index will be the sole release in the US calendar.

What to look for around EUR

The resumption of the downside in EUR/USD now flirts with the key 2020-2021 support line in the 1.1770/80 band. As usual in past weeks, price action around the pair is expected to exclusively hinge on dollar dynamics, particularly as investors continue to adjust to the Fed’s hawkish message, prospects of higher inflation in the US and potential QE tapering earlier than anticipated. On the euro side of the equation, recent results from key fundamentals hinted at the idea that the recovery could have stalled or lost some momentum, casting some doubts over the growth prospects into the second half of the year. In addition, the dovish stance from the ECB could well be re-affirmed or even intensified at the next event later in the week, which carries the potential to keep the euro well under pressure.

Key events in the euro area this week: ECB meeting, EMU Flash Consumer Confidence (Thursday) – EMU advanced PMIs (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. German elections. Investors’ shift to European equities in the wake of the pandemic.

EUR/USD levels to watch

So far, spot is losing 0.28% at 1.1768 and a breakdown of 1.1762 (78.6% Fibo of the November-January rally) would target 1.1704 (2021 low Mar.31) en route to 1.1602 (November 2020 low). On the other hand, the next hurdle is located at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2002 (200-day SMA).