EUR/USD looking soft in the 1.2130s, but off lows for now

EUR/USD has bounced modestly after hitting fresh lows of the day under 1.2120 in recent trade and now trades in the 1.2130s. The pair is still one of the worst-performing G10 currencies on the day, however, down roughly 0.3% or around 35 pips.

Covid-19 lockdown and vaccine concerns have weighed the single currency on Monday, but EUR/USD still trades within last week’s ranges and seems well supported above 1.2100 for now. Indeed, to get below 1.2100, the pair would need to break below its 50-day moving average (DMA), which currently sits just above the big figure. Meanwhile, if the bulls are to push the pair above the 1.2200 level, the 21DMA, which currently resides at 1.2198, will be needed.

EUR struggles on lockdown/vaccine delay worries

Eurozone lockdowns continue to tighten, amid concerns regarding the spread of the new and now know to be slightly more deadly, UK variant of Covid-19. French President Emmanuel Macron could announce a new national lockdown in France as soon as Wednesday night, to start before the end of the week and last at least three weeks, reported Journal du Dimanche. French government minister Beaune was asked about a possible lockdown this morning but said nothing has been decided yet, which seems to be the official government stance right now.

Meanwhile, anxiety is growing in Brussels over the blocks sluggish vaccination drive when compared to key competitors; the UK has administered more than 10 doses per 100 people, the US just over six per 100 and the EU under two doses per 100, according to FT data.

Note that, last Friday, AstraZeneca informed the EU that it would be cutting deliveries to the bloc by 60% in Q1, to just 31M doses. The vaccine maker said it was unable to forecast Q2 deliveries and blamed the drop in deliveries on problems in its Belgium factory. This came about a week after Pfizer delayed a large portion of its planned deliveries to the bloc.

Separately, concerns over political instability in Italy; it is looking more and more likely that Italian PM Giuseppe Conte will resign from his post in a bid to form another coalition government that would have the ability to pass the necessary legislation in the coming weeks/months. Conte is also said to increasingly like the idea of an early election given his strong standing in the polls.

Downbeat start to the year for the Eurozone economy

January’s German IFO survey was downbeat. The Business Climate Index, Current Conditions Index and Expectations Index all came in below expectations. The commentary from IFO economists did not make for optimistic reading; IFO’s Dr Klaus Wohlrabe said that IFO expects GDP to stagnate in Q1 and that the German economy is starting 2021 with very little confidence. Wohlrabe continued that retail had “collapsed” and uncertainty had grown, something which vaccine delays was not helping. EUR dropped in the immediate aftermath of the report, which seemed to reinforce some of the above-mentioned negative news developments over the weekend.

Coming up

The pandemic remains the key theme to watch for EUR and Eurozone related assets. Any more vaccine delays? With the EU upping the pressure on vaccine makers to deliver, will this yield any results (i.e. a reduction in delays)? Will France and any other countries announce lockdowns?

Preliminary January Consumer Price Inflation numbers out of Germany and Spain, as well as preliminary Q4 GDP growth numbers out of Germany, France, and Spain will be the main data releases to watch.  

Meanwhile, ECB speak largely went under the radar on Monday (Chief Economist Phillip Lane largely reiterated what ECB President Christine Lagarde had said last week) and is likely to continue to do so for the rest of the week.

EUR/USD key levels