The EUR/USD price continued its bearish trend on Monday morning as investors reflected on the latest Covid-19 surge in Europe. The pair is trading at 1.1266, which is the lowest it has been since July last year. Like the dollar index, the pair has dropped by more than 8% from its highest level this week.
Europe Covid surge
Europe is seeing a new major Covid-19 surge, pushing many investors to worry about the region’s economic growth.
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Germany is averaging about 45,000 new cases every day while the number of hospitalizations has jumped. Similarly, the number of daily Covid infections in Italy has been in an upward trend.
The most-affected countries are Netherlands and Austria. In a statement on Friday, the Austrian government said that it will start a new lockdown this week. This announcement led to major protests during the weekend. Germany is also considering some form of restrictions.
Therefore, the EUR/USD pair has crashed simply because analysts expect that the new wave of the pandemic will have an impact on Europe’s economy. Subsequently, this trend will have an impact on the European Central Bank (ECB) decision.
The ECB has sounded a bit dovish in the past few months. While it has started tapering, analysts believe that it has been relatively slower than other central banks like the Fed and the Bank of England. Indeed, on Friday, Christine Lagarde reiterated that the bank will not hike interest rates in 2022.
Looking ahead, the EUR/USD will react to the new trends on Covid-19 in Europe. Most importantly, it will react to Biden’s decision on the next Fed Chair. He is expected to choose Jerome Powell or Lael Brainard.
The pair will also react to the latest US GDP data scheduled for Wednesday and the flash Eurozone inflation numbers.
The daily chart shows that the EUR/USD has been in a steep sell-off lately. The pair’s decline continued when it moved below the key support level at $1.1715. It has moved below the 25-day and 50-day moving averages. At the same time, oscillators like the Relative Strength Index (RSI) and the MACD has continued falling. Therefore, the path of the least resistance for the pair is downwards.
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