- EUR/USD’s upside remains capped near 1.1880.
- The dollar remains bid amidst the recovery in US yields.
- ECB’s De Guindos sees higher inflation in the next months.
EUR/USD remains on the defensive in the mid-1.1800s so far at the beginning of the week.
EUR/USD quickly faded the bullish attempt to recent tops in the 1.1880 region earlier in the session as the demand for the greenback gathered renewed pace.
In fact, the dollar gains upside momentum in response to the recovery in yields of the key US 10-year reference, which managed to re-test the 1.35% region following last week’s lows near 1.25%.
Earlier, ECB’s De Guindos suggested inflation is expected to remain high for the next months, while he added that the Council will discuss new forward guidance next week. On the latter, the ECB is scheduled to meet on July 22.
EUR/USD has managed well to bounce off recent lows in the 1.1780 region, just above the key 2020-2021 support line. Price action around spot, in the meantime, is expected to exclusively follow dollar dynamics, particularly as investors continue to adjust to the latest FOMC gathering, when the Committee opened the door to tapering the QE programme sooner than anticipated. In addition, support for the European currency in the form of auspicious results from fundamentals in the bloc now appears somewhat mitigated considering recent data, although the investors’ morale remains high amidst the persistent optimism surrounding a strong rebound in the economic activity in the second half of the year.
Key events in the euro area this week: Euro Group meeting (Monday) – Germany Final June CPI (Tuesday) – EMU Industrial Production (Wednesday) – EMU Final June CPI (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.
So far, spot is losing 0.13% at 1.1862 and a breakdown of 1.1781 (monthly low Jul.7) would target 1.1762 (78.6% Fibo of the November-January rally) and route to 1.1704 (2021 low Mar.31). On the other hand, the next up barrier emerges at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2001 (200-day SMA).
