EUR/USD drops to weekly lows near 1.1815, dollar pushes higher

Another day, another pullback in EUR/USD, this time to the 1.1820/15 band, or new 5-day lows.

EUR/USD weaker as dollar bounces

EUR/USD clinches its third drop in a row so far this week, coming under increased selling pressure after another failed attempt to surpass the 1.1900 neighbourhood on a convincing fashion (Friday).

The weekly leg lower in the pair comes pari passu with the rebound in the greenback, in turn sustained by rising US yields and perseverant concerns over the spread of the Delta variant of the coronavirus and its potential impact on growth prospects.

Earlier in the session, ECB’s Holzmann advocated for a sooner-than-expected normalization of the monetary policy on the back of potential upside risks in inflation. In addition, B.Vasle noted that “highly accommodative” policy is still needed to counteract the effects of potential new waves of the pandemic.

In the domestic docket, French Nonfarm Payrolls rose 1.1% QoQ in Q2 and the trade deficit came in at €7 billion in July. In Italy, Retail Sales contracted 0.4% MoM in July.

In the US docket, MBA Mortgage Applications are due followed by JOLTs Job Openings, the IBD/TIPP Index, Consumer Credit Change and the weekly report by the API.

What to look for around EUR

The downside momentum in EUR/USD gathers further traction and threatens to re-visit the 1.18 region sooner rather than later. The renewed bid tone in the dollar put the recent upside in the pair under pressure along with a softer note in the risk complex. Despite the recent hawkish tilt from ECB-speakers, consensus seems to be shaping up around the likeliness that Lagarde could talk down tapering hopes at the ECB meeting on Thursday, which is also seen as another source of EUR weakness so far.

Key events in the euro area this week: German Trade Balance, ECB meeting (Thursday) – Final German CPI, EuroGroup meeting (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 in September could bring some political jitters to the scenario. 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 1.1816 and faces the next up barrier at 1.1909 (monthly high Sep.3) followed by 1.1945 (100-day SMA) and finally 1.2000 (psychological mark, 200-day SMA). On the other hand, a break below 1.1811 (55-day SMA) would target 1.1663 (2021 low Aug.20) en route to 1.1612 (monthly low Oct.20 2020).