EUR/USD ticks up from three-week lows at 1.1720 and returns to 1.1750

The euro has trimmed losses after dropping nearly 0.5% on Wednesday, to hit 1.1720 low, and has returned to the mid-range of 1.1700 during the late US session.

Euro dives on concerns of new lockdowns

The common currency has broken below the bottom of the last four days trading range, around 1.1785, with the US dollar surging across the board amid a strong risk-averse sentiment.  

The growing cases of COVID-19, with Europe and the US reporting new records, has reactivated concerns about a new wave of social restrictions that might derail the fragile economic recovery. These fears have been confirmed later on when France and Germany announced second national lockdowns.

Furthermore, the uncertainty about the US presidential elections has contributed to curbing appetite for risk further. With the distance between the favourite Joe Biden and Donald Trump closing in, investors are wary that a contested election might trigger sharp price moves.

EUR/USD: seen at 1.1600 in three months – Rabobank

In a bigger picture, the FX analysis team at Rabobank sees the second coronavirus wave and fears of deflation hurting the euro in the mid-term: “While the huge liquidity facilities put in place by the Federal Reserve this year suggest that the market is unlikely to see anything like the disruption experienced in March in the foreseeable future, we do expect reduced risk appetite to translate into a covering of short USD positions. We look for EUR/USD at 1.17 on a one-month view and see risk of a dip to EUR/USD 1.16 in three-months.”  

Technical levels to watch