EUR/USD drops back below 1.1300 amid coronavirus fears

EUR/USD retreats to 1.1280 during Monday’s initial Asian session, following the heaviest daily jump of 2021. The coronavirus variant, dubbed as ‘Omicron’, shook markets and the US dollar on Friday before the greenback started nursing losses a few hours back.

With its grave symptoms like heavy mutations and ability to fight vaccines better, Omicron raises serious concerns against the market’s previous optimism during an otherwise holiday-thinned day. Not only the fears concerning health but challenges to the earlier talks of the monetary policy tightening also seem to have closed by the stated virus variant.

The European Central Bank (ECB) was already hesitant to accept the hawkish calls for rate hikes and/or end the Pandemic Emergency Purchase Programme (PEPP) and the latest strain of the coronavirus offered another reason for them to turn dovish. Following the wide chatters of the stated ‘Omicron’, ECB President Lagarde crossed wires during an interview with Italian media in the weekend, shared by Reuters. ECB’s Lagarde said, "There is an obvious concern about the economic recovery [of the euro zone] in 2022, but I believe we have learnt a lot. We now know our enemy and what measures to take. We are all better equipped to respond to a risk of a fifth wave or the Omicron variant".

On the other hand, Atlanta Federal Reserve President Raphael Bostic spoke during the weekend as well while saying, “Covid is the source of inflation.”

Amid these plays, US stock futures print mild gains after the heavy fall of Friday whereas the US 10-year Treasury yields lick their wounds near 1.482%, the lowest level in 13 days. It’s worth noting that the US Dollar Index (DXY) struggles around 96.25% after declining the most since May.

Given the divergent view of the policymakers from Europe and the US, as well as higher hopes from the Fed than the ECB to announce rate hikes, the EUR/USD renews downside of late. The moves could escalate if Fed Chair Jerome Powell refrains from accepting the fact that the new version of the COVID-19 challenges the odds of the rate.

It’s worth noting that US President Joe Bide and ECB President Christine Lagarde are up for speeches as well, which in turn keeps the EUR/USD traders cautious ahead of the events. Also important are the US housing data and German inflation data from Europe.

Technical analysis

Despite crossing 10-DMA on a daily closing basis, around 1.1280 by the press time, even short-term EUR/USD bulls remain away from the entries until the quote crosses a monthly resistance line around 1.1445-50.