EUR/USD extends its sell-off to explore levels below 1.1600

The euro is plunging about 0.7% on the day to hit lows below 1.1600 for the first time since November 2020. The pair has accelerated its downtrend after breaking below 1.1665 earlier on Wednesday, weighed by broad-based US dollar strength and concerns about Eurozone’s post-pandemic recovery.

USD strength crushes the euro

The solid rally on US bond yields, buoyed by expectations of the end of the Federal Reserve’s accommodative policy era, has boosted the greenback across the board. The US Dollar Index, which measures the value of the dollar against a basket of the most traded currencies, has appreciated about 1.35% over the last six days to reach its highest levels since November 2020.

In absence of other fundamental drivers, the energy crisis in Europe, caused by surging gas prices with inventories at historical lows, is raising concerns about the strength of the economic recovery in the Euro Area and is increasing negative pressure on the common currency.

EUR/USD: pushing against key support at 1.1600

From a technical perspective, the EUR/USD is now testing a key support level at 1.1600 (September and November 2020 lows). If the pair confirms below here, the next support might be at 1.1560 (50% Fibonacci retracement of the May 2020 – January 2021 rally) and 1.1500 psychological level.

On the upside, the pair should regain previous lows at 1.1670 (August’s low) and 1.1680 (September 23 low) to ease bearish pressure and aim towards 1.1750 (September 22, 23 highs).

EUR/USD daily chart

Technical levels to watch