EUR/USD loses traction and drops to 3-day lows near 1.0200

  • EUR/USD extends the decline to the vicinity of 1.0200.
  • The greenback looks supported by the risk-off sentiment.
  • US NAHB Index, TIC Flows, the NY Empire State Index all due later.

The selling bias still dominates the mood around the European currency and drags EUR/USD to fresh 3-day lows in the 1.0200 area at the beginning of the week.

EUR/USD weaker on USD-buying

EUR/USD loses ground for the second straight session on Monday, as the greenback continues to reclaim ground lost in a context favourable to the risk-off mood and amidst the loss of momentum in German yields.

Indeed, the pair started the week on the back foot in response to poor results from the Chinese docket earlier in the session. Also adding to the soft performance of the risk complex, the PBoC reduced the 7-day reverse repo rate to 2.00%, which is also seen impacting on the appetite for the riskier assets.

Nothing scheduled data wise in the Euroland, whereas the NAHB Index, the NY Empire State Index and TIC Flows are all due later in the NA session.

What to look for around EUR

EUR/USD’s upside momentum met a decent hurdle around 1.0360/70, an area coincident with the 55-day SMA and the 6-month resistance line so far.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges and the incipient slowdown in some fundamentals.

Key events in the euro area this week: EMU, Germany ZEW Economic Sentiment, EMU Balance of Trade (Tuesday), EMU GDP Growth Rate (Wednesday) – EMU Final Inflation Rate (Thursday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is losing 0.1745 at 1.0210 and a break below 1.0096 (weekly low July 26) would target 1.0000 (psychological level) en route to 0.9952 (2022 low July 14). On the other hand, the next up barrier comes at 1.0368 (monthly high August 10) seconded by 1.0514 (100-day SMA) and finally 1.0615 (weekly high June 27).

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