Sweeping Coronavirus Lockdowns to Keep EUR/USD Under Pressure


Key Takeaways:

  • Sweeping coronavirus restrictions throughout Europe may keep EUR/USD under pressure in the week ahead.
  • Upcoming PMI survey figures will be closely eyed by market participants.
  • EUR/USD poised to continue moving lower as prices validate the Double Top pattern carved out earlier this year.

The growth-sensitive Euro looks set to extend its significant slide lower against the haven-associated US Dollar in the coming weeks, as a surge in coronavirus infections forces several European nations back into lockdown. Just over 2.2 million new cases of Covid-19 were recorded in Europe in the week ending November 14, the highest number of infections recorded since the inception of the pandemic. This has seen Austria reimpose widespread curbs on unvaccinated people, while parts of Germany and the Netherlands have already implemented the closure of non-essential businesses.

European Union Coronavirus Cases

Source – Statista

The reimplementation of growth-hampering restrictions may call into question the European Central Bank’s planned tapering of its ultra-loose monetary policy settings, with its Pandemic Emergency Purchase Program (PEPP) scheduled to end in March of 2022. The bank is also purchasing 20 billion euros a month in assets through its APP program at present. A slowdown in Euro-area growth may open the door for officials to maintain the ECB current’s policy settings, despite a recent uptick in inflationary pressure. Inflation hit its highest levels since 2008 last month, on the back of supply-chain logjams and surging energy prices.

Euro-Area Inflation Rate

Source – TradingEconomics

With that in mind, it seems highly unlikely that the Euro will peg back a meaningful amount of ground against the US Dollar in the short-term. Indeed, disappointing PMI figures scheduled to be released this week may exacerbate the currency’s recent weakness and lead the EUR/USD exchange rate to fresh yearly lows.

Economic Calendar

Source – TradingEconomics

EUR/USD Daily Chart – Double Top Pattern Continuing to Play Out

From a technical perspective, the outlook for EUR/USD remains skewed to the downside as prices collapse below the 1.1300 mark for the first time since July 2020.

Bearish moving average alignment, in combination with the RSI hovering in oversold conditions, suggests that a more extended move lower could be on the cards.

Indeed, with prices confirming the Double Top pattern carved out between January and March, a move to challenge the 1.1000 handle may eventuate in the coming months.

Ultimately, a daily close below the 61.8% Fibonacci (1.1262) is needed to validate bearish potential and carve a path for sellers to probe range support at 1.1150-75.

However, if Fibonacci support remains intact, a short-term rebound back towards the 9-day EMA and maybe as far as the 50% Fibonacci (1.1462) can’t be ruled out.

Chart prepared by Daniel Moss, created with Tradingview