EUR/USD sinks to new lows near 1.1770, dollar looks stronger

• EUR/USD starts the week on the defensive below 1.1800.
• The dollar extends the recovery and weighs on the risk complex.
• German Wholesale Prices rose 0.5% MoM, 12.3% YoY in August.

The single currency remains under pressure and drags EUR/USD to fresh 3-week lows in the 1.1775/70 band on Monday.

EUR/USD weaker on USD rebound

EUR/USD sheds ground for the second session in a row and breaks below the key support at 1.1800 to record new multi-week lows in the vicinity of 1.1770.

The renewed weakness surrounding the pair comes in response to the continuation of the recovery in the dollar, which in turn pushes the US Dollar Index (DXY) to fresh peaks in levels just shy of the 93.00 barrier.

Spot trades on a weak footing along with the rest of the risk-associated peers in a context dominates by the re-emergence of inflation fears (exacerbated after Friday’s higher-than-expected US Producer Prices) and constant concerns around the Delta progress and the potential impact on the global recovery.

Data wise in the euro area, the German Wholesale Prices rose 1.1% MoM in August and 12.3% from a year earlier. Later in the session, there will be a 10-year Bund auction in Germany. No releases across the pond on Monday should leave all the attention to Tuesday’s key inflation figures tracked by the CPI.

What to look for around EUR

Renewed weakness in the risk complex puts EUR/USD under extra pressure and forces it to re-visit the area below the 1.1800 key support at the beginning of the week. With the ECB’S dovish “recalibration” now in the rear-view mirror, investors now seem to have shifted the attention back to inflation fears, which, coupled with the Fed’s taper speculations, have been all lending extra legs to the buck in past sessions.

Key events in the euro area this week: Industrial Production (Wednesday) – Balance of Trade (Thursday) – EMU Final August CPI (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections in September could bring some political jitters to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.16% at 1.1790 and faces the next up barrier at 1.1909 (monthly high Sep.3) followed by 1.1937 (100-day SMA) and finally 1.2000 (psychological level). On the other hand, a break below 1.1774 (low Sep.13) would target 1.1704 (monthly low Mar.31) en route to 1.1663 (2021 low Aug.20).