EUR/USD remains on the defensive near 1.1770, focus is on the ECB

Following new monthly lows in the mid-1.1700s, EUR/USD manages to regain some composure and now approaches the 1.1770/80 band on Wednesday.

EUR/USD under pressure ahead of ECB

EUR/USD struggles to reverse/halt the prevailing downtrend, which has led the pair to fresh 3-month lows in the 1.1750 region earlier in the session. The strong pullback in the pair, it is worth recalling, comes exclusively after the Fed’s shift to a more hawkish message at its meeting in late June.

Furthermore, the pick-up in cases of the Delta variant of the coronavirus has lent further oxygen to the demand for the safe havens in detriment of the riskier assets, putting spot under extra downside pressure in past sessions.

In the euro docket, Italian Industrial Sales contracted at a monthly 1.0% in June and expanded 40.20% vs. the same month of 2020. Later, there is a German 30-year bond auction.

In the meantime, the outlook for the shared currency remains fragile ahead of the ECB event on Thursday. Consensus among investors expect the central bank to keep the accommodative stance well in place and anticipate the outcome of the meeting to fall on the dovish camp.

Across the pond, MBA will publish its weekly Mortgage Applications ahead of the EIA’s report on crude oil inventories.

What to look for around EUR

Another day, another fresh low in EUR/USD, this time dropping to the 1.1750 region just to regain some traction soon afterwards. 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 0.01% at 1.1775 and a breakdown of 1.1751 (monthly low Jul.21) 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).