EUR/USD: Three fundamental downside drivers

EUR/USD has been retreating from the highs and may have substantially more room to give up previous gains as the week draws to a close. Yohay Elam, an Analyst at FXStreet, gives three reasons why the euro is set to extend its falls.

Key quotes

“Returns on US debt remain the main market driver – and when they rise, the dollar moves higher as well. The rise in ten-year yields above 1.60% is critical.”

“The European Central Bank sought to address this by accelerating its bond-buying program ‘significantly’ in the second quarter. However, the scope of the plan remains unchanged at €1.85 trillion. Moreover, this Pandemic Emergency Purchasing Program (PEPP) is still on course to expire in March 2022. Accompanied by confusing messages from ECB President Christine Lagarde, the euro remains vulnerable.”

“Europe's sluggish growth forecasts are highly correlated with its slow vaccine rollout – and the situation has further worsened. The EU is heavily reliant on AstraZeneca's jabs, and additional issues have surfaced. Supplies are delayed once again, and in some countries, they have halted altogether due to concerns that the doses result in blood clots.”

“Support awaits at 1.1925, which capped the pair early in the week. It is then followed by 1.1895. Resistance awaits at 1.1990, the weekly high and also a support line seen early in March. It is followed by 1.2025 and 1.2050.”