EUR/USD Price Breakdown Set to Continue as Germany Warns of Third Pandemic Wave
Euro Price, News and Analysis:
- German RKI warns of a rising number of coronavirus patients.
- Euro likely to remain weak as bond yields slide lower.
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Germany is at the beginning of the third wave of coronavirus, the Head of the Robert Koch Institute Lothar Wieler said yesterday, after the number of new covid-19 cases in Germany rose by around 2,500, the largest daily increase in over one month. Germany, and the EU, have been behind the curve on vaccinations due to supply problems, while headline fears over the safety of the AstraZeneca vaccination for over-65s have also weighed on the program. Any further delay in re-opening the German economy will weaken the single-currency further.
The latest ECB policy decision held on Thursday, March 11, saw all monetary settings left untouched, although the central bank said that they would increase the rate of their PEPP bond-buying program in the coming months in an effort to stem the recent uptick in Euro Area bond yields. According to the ECB, ‘the Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation’.
The Euro-US Dollar rate is also being impacted by higher government bond yields in the US with the benchmark US 10-year now offering 1.60%, its highest level in over a year. The yield spread differential between the US 10-year note (1.605%) and the German 10-year Bund (-0.315%), the de-facto Euro Zone benchmark, is now 192 basis points, the widest level since February 2020. If this spread widens further, which is looking increasingly likely, EURU/USD will be pushed lower.
The daily chart shows the short-term weakness in the pair and an open below the 200-day simple moving average at 1.1935 would leave 1.1900 vulnerable before a further move lower to 1.1832. Below here 1.1800 comes into view.
EUR/USD Daily Price Chart (July 2020 – March 12, 2021)
IG Retail trader data show 47.44% of traders are net-long with the ratio of traders short to long at 1.11 to 1. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.
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