EUR/USD loses the grip and drops to lows near 1.2000

• EUR/USD adds to Tuesday’s losses and approaches 1.20.
• The dollar regains some poise along with higher yields.
• Rising COVID cases in Asia supports the shift to the risk-off mood.

The single currency adds to Tuesday’s losses and forces EUR/USD to extend the correction lower to the vicinity of the psychological 1.2000 yardstick.

EUR/USD challenges the 1.20 support

After hitting fresh multi-week highs in the vicinity of 1.2080 on Tuesday, EUR/USD failed to sustain the upside and now slips back to the 1.2000 neighbourhood, all amidst the resurgence of some risk aversion and the subsequent pick up in the demand for the buck.

In fact, increasing COVID cases, particularly in Asia, appears to have reignited the interest for the dollar and woke up the dormant volatility in the global markets, with the VIX index (aka “the panic index”) climbing to levels above 18.00 after bottoming out in the area last seen in February 2020 below 15.00 just a week ago.

In the docket, there is a 10-year Bund auction later in the European morning worth some interest. Across the pond, MBA will publish the weekly Mortgage Applications and the EIA’s report on crude supplies.

What to look for around EUR

EUR/USD moved to fresh peaks around 1.2080 before losing some traction amidst the resurgence of dollar demand and volatility on fresh coronavirus woes. The continuation of the rally has been so far supported by the renewed offered bias in the dollar along with the investors’ shift to the growth prospect in Europe now that the vaccine campaign appears to have gained some serious pace. In addition, solid results from key fundamentals and the improvement in the sentiment in the euro area as of late also appear to bolster the momentum surrounding the single currency.

Key events in the euro area this week: ECB interest rate decision, President Lagarde’s press conference, European Commission advanced Consumer Confidence (Wednesday) – Flash April PMIs (Friday), ECB Lagarde speech.

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund.

EUR/USD levels to watch

At the moment, the index is losing 0.20% at 1.2009 and a breach of 1.1913 (200-day SMA) would target 1.1762 (78.6% Fibo of the November-January rally) en route to 1.1704 (2021 low Mar.31). On the other hand, the next hurdle is located at 1.2079 (monthly high Apr.20) followed by 1.2243 (monthly high Feb.25) and finally 1.2349 (2021 high Jan.6).