Search ForexCrunch
  • EUR/USD was seen consolidating its losses to over two-week lows amid stronger USD.
  • The risk-off mood, upbeat US economic outlook underpinned the safe-haven greenback.
  • Investors now look forward to the Eurozone PMI prints for a fresh directional impetus.

The EUR/USD pair dropped to over two-week lows, around the 1.1835 region during the Asian session on Wednesday, albeit recovered few pips thereafter. The pair was last seen hovering around mid-1.1800s, nearly unchanged for the day.

Following the previous day’s sharp fall of nearly 100 pips, the pair now seems to have entered a bearish consolidation phase as investors await fresh catalyst from Wednesday’s flash Eurozone PMIs. That said, the fundamental backdrop remains tilted in favour of bearish traders and supports prospects for further weakness.

The US dollar remained well supported by the upbeat US economic outlook, bolstered by the impressive pace of COVID-19 vaccinations and the passage of a massive stimulus package. Apart from this, the prevalent risk-off mood further benefitted the greenback’s safe-haven status and cap the upside for the EUR/USD pair.

The global risk sentiment took a hit after Western countries imposed sanctions on Chinese officials over the human rights violations in Xinjiang. The flight to safety picked up pace in reaction to Treasury Secretary Janet Yellen’s comments that tax hikes will be needed to pay for infrastructure projects and other public investments.

This, along with easing inflation worries acted as a headwind for the US bond yields, albeit did little to dent the bullish sentiment surrounding the USD. The Fed Chair Jerome Powell, testifying before the House Financial Services Committee on Tuesday, downplayed the risks that economic growth would spur unwanted inflation.

On the other hand, the shared currency was weighed down by growing market concerns about the third wave of COVID-19 infections, pandemic-related lockdowns and the slow vaccine rollouts in Europe. Several European countries extended or reintroduced lockdown measures in an effort to curb rising cases, fuelled by more contagious new variants.

The endless lockdown is expected to have ruined the recovery in the Eurozone’s dominant services industry and hence, Tuesday’s release of Services PMIs will carry more significance. Weaker readings will add to the narrative of uneven economic recovery in the region, which should pave the way for additional weakness for the EUR/USD pair.

Technical levels to watch