EUR/USD: Concerns of rising inflation and ECB dovishness to restrain the euro


EUR/USD has been under pressure as fears of inflation have boosted the dollar. According to FXStreet’s Yohay Elam, there are clear reasons for the currency pair’s retreat from the highs, yet it probably remains only a temporary correction. 

ECB’s dovish policy comments may pressure the euro to counter Europe’s vaccination progress

“Fears of rising inflation remain prevalent, as commodity prices continue rising and after China reported a leap in producer prices – 6.8% annually, more than predicted. Tech stocks have already suffered from these growing concerns and the safe-haven dollar is also gaining some ground.”

“The euro has been suffering dovish comments from Francois Villeroy de Galhau, a member of the European Central Bank. He favors maintaining the ECB’s bond-buying scheme at least through March 2022, if not beyond. After several contradictory headlines, his words seem to carry more weight and push the common currency lower.”

“The euro remains underpinned by Europe’s accelerating vaccination campaign. The old continent is catching up with the US and the efforts are bearing fruit – COVID-19 cases are falling in Germany and in other places. Roughly 30% of EU residents have received at least one jab.”

“Euro/dollar is benefiting from upside momentum, not the four-hour chart and trades above the 50 and 100 Simple Moving Averages (SMA). The Relative Strength Index (RSI) has dropped below 70, thus exiting overbought conditions and allowing for more gains.” 

“Some resistance awaits at 1.2150, the April peak, and then by 1.2180, the high point recorded in May. Some support is at the daily low of 1.2125, followed by 1.2080 and 1.2050.”


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