The euro-dollar pair is under background pressure for the second day in a row, gradually sliding to the first support level at 1.1830, which corresponds to the lower border of the Kumo cloud on the D1 timeframe. Buyers of EUR/USD have been skimming the cream for almost two weeks, taking advantage of the consistent decline in the American currency. But you cannot build happiness on someone else's pain: the greenback's weak positions only justified the longs for the time being, while for a trend reversal, support from the single currency is also needed. But there are problems with this: on the eve of the September meeting of the ECB, traders behave extremely cautiously, despite the "hawkish" statements of some representatives of the European regulator.
The German ZEW Institute, which published an index of sentiment in the business environment in Germany, also added its fly in the ointment today. This indicator has been consistently and steadily declining over the past four months. For example, if at the end of spring the index was at the level of 84 points, then today it has reached the 26-point mark. Experts attribute this negative trend to the spread of the COVID-19 Delta strain. Both in Germany and in the European Union as a whole, the number of infected is growing due to the more contagious variant of the coronavirus. This fact makes entrepreneurs nervous, so the ZEW index has been diving down since June.
But here it is necessary to pay attention to one important nuance. According to representatives of the German government, the determining factor for tightening quarantine measures will be the number of hospitalizations, while the indicator of the daily increase in the number of infected will play a secondary role. In Germany, more than 60% of residents were vaccinated, in connection with which the number of patients with coronavirus in hospitals and the number of deaths has sharply decreased in the country. Therefore, in the future, when deciding on the introduction of a lockdown, it is planned to take into account only the number of hospitalizations. The authorities have not yet determined the critical value of this indicator. But for comparison, it can be noted that the maximum value was recorded at the end of December 2020: 15 hospitalizations per 100,000 residents in 7 days. To date, this figure is the national average of 1.83 cases of hospitalization with COVID-19 per 100,000 residents over the past 7 days. The indicator has been gradually increasing over the past few weeks, but it is still very, very far from the critical value.
Nevertheless, the worsening epidemiological situation is hitting the euro positions, preventing buyers of EUR/USD from approaching the borders of the 19th figure. Traders reasonably assume that in the current conditions, the European regulator will not dare to curtail monetary incentives - after all, hasty decisions can neutralize the titanic work of the Central Bank to overcome the consequences of the pandemic. The risks are still high, vaccine efficacy (over time) declines, and the Delta strain is affecting more and more young people. The coronavirus may again do EUR/USD traders a "disservice" - literally and figuratively. Inflated expectations, provoked by the hawkish comments of some ECB representatives, may not materialize, after which the euro will be under strong pressure.
According to the general expectations of experts, the European Central Bank on Thursday will reduce the volume of purchases of assets under the PEPP program from €80 billion to €60 billion per month. In my opinion, this factor has already been partially (or even completely) won back by market participants, therefore, if the wait-and-see position is maintained, the single currency will also be under attack. In addition, the ECB could amplify the "dovish" effect if it announces an increase in the scale of the main asset purchase program. According to some analysts, the volume of this program will be doubled next spring. If at the September meeting Christine Lagarde even admits the likelihood of this scenario, the euro will plunge, including in a pair with the greenback, regardless of the condition of the latter.
Judging by the dynamics of the EUR/USD pair, traders are fully focused on the September meeting of the ECB, the results of which we will learn the day after tomorrow. The US dollar index has stopped its decline, and now the euro paired with the dollar can only rely on itself. Taking into account the fact that the pair is slowly sliding down to the support level of 1.1830, it can be assumed that until the announcement of the results of the September meeting of the Central Bank, traders will be guided only by the behavior of the US currency. The single currency is too vulnerable and unreliable.
The closest resistance level for the EUR/USD pair is located at 1.1900. This level corresponds to the upper line of the Bollinger Bands indicator on the D1 timeframe. Last Friday, after the release of the disappointing nonfarm payrolls report, traders tested this target but retreated almost immediately. This week, the upside momentum has come to naught: the price is gradually declining, spurred on by dollar bulls. Therefore, until Thursday, any upside spikes can be used as an excuse to open short positions. The first target is located at 1.1830 (the lower border of the Kumo cloud at D1). The main support level is located at 1.1780, which is the middle Bollinger Bands line, which coincides with the Kijun-sen line on the same timeframe.
The material has been provided by InstaForex Company - www.instaforex.com