The euro-dollar pair in the first half of Monday moved by the inertia of Friday's trading, continuing the downward trend. EUR/USD bears once again tested the area of the 17th figure and updated another multi-month low, reaching the level of 1.1764. The last time the pair was in this price area was more than three months ago, in early April. Such price dynamics was caused not only by the general strengthening of the greenback, but also by the growing panic around the spread of the so-called "Indian" strain - both in Europe and in the whole world.
This factor puts pressure on the euro and at the same time supports the dollar, which is used by investors, including as a protective tool. According to the CFTC report, the total volume of net short positions in the greenback against major currencies last week fell to two billion – this is the lowest figure since March 2020, when there was a stir around the US currency. For comparison, we can say that dollar bears felt much more confident at the beginning of this year – for example, bearish rates were more than $30 billion in January. The increase in the number of cases of infection with the "Delta strain" of coronavirus has significantly cooled the demand for most risk-oriented assets. The euro also got into a kind of "black list".
According to the latest report, the number of new cases of coronavirus in the European Union increased by almost 65% compared to the previous week. An increase in the number of new cases of infection was recorded in 20 countries of the EU. And although the number of hospitalizations and the workload of intensive care units has not dramatically increased (because mainly young people who are easier to tolerate the disease are infected), EUR/USD traders view the current situation in their own way - through the prism of possible lockdowns. It is this factor that puts pressure on the European currency, which was previously under pressure from the European Central Bank's dovish position and weak inflation reports. At the same time, the European Center for Disease Prevention and Control warned in its weekly summary report that experts expect the epidemic situation to continue to worsen in many countries due to the spread of the Indian strain. According to experts, by the end of August, the Delta variant of Covid will account for about 90% of cases of infection circulating in the EU.
The incidence is also growing in the United States, but the authorities (both in Washington and at the federal level) react to the current situation somewhat differently: they announced the beginning of a "pandemic of the unvaccinated". There is no talk about tightening quarantine restrictions in the country yet – instead, the US health authorities have called for vaccination against coronavirus. People are being asked to get vaccinated urgently due to the spread of a new strain of COVID. According to the representative of the White House (coordinator for the fight against coronavirus), unvaccinated people represent "almost all cases of hospitalization and death." Figuratively speaking, the United States shifted responsibility for the possible consequences of a new COVID wave to unvaccinated citizens, while no one seriously allows a repeat of the events of last year, when the country's economy was actually frozen.
In other words, despite the fact that the spread of the "Delta strain" affects both the EU countries and America, this fundamental factor exerts background pressure on EUR/USD. As well as the uncorrelation of the positions of the ECB and the Federal Reserve regarding the prospects for monetary policy. Last week, Fed Chairman Jerome Powell failed to convince the markets that the US central bank will categorically follow the previously outlined plan – both with regard to Quantitative Easing and the interest rate. Such dovish rhetoric from Powell had a corresponding effect in late spring, when inflation showed a jumpy growth for the first time this year. But as the inflation indicators do not worsen from month to month (on the contrary, they are growing at a record pace), more and more traders and analysts doubt the correctness of the approach taken by the Fed leadership. According to a number of analysts, with such inflation indicators, it will be more and more difficult for the Fed to maintain a firm position. Some representatives of the US central bank have already voiced concern about inflationary growth and the negative consequences of QE (in particular, in the US housing market).
It is much easier for the ECB in this regard – according to the latest data, the consumer price index (both general and core) slowed down its growth in June, being in the red zone. After this release, even the most notorious ECB hawks cooled their ardor. It is obvious that the issue of early curtailment of incentives will not be discussed by the members of the central bank in the foreseeable future – including at the July meeting, the results of which we will learn this Thursday.
Thus, the current fundamental picture for the EUR/USD pair speaks of the priority of short positions. Any more or less large-scale corrective price growth can be used as an excuse to enter short positions. The target of the downward movement in the medium term is 1.1760, which is the lower line of the Bollinger Bands on the daily chart.
