EUR/USD: Rapid spread of Delta covid variant is a lose-lose for the euro

EUR/USD is trading closer to 1.1850, retreating from the highs. Delta depression and ECB dovishness are set to weigh on the euro, Yohay Elam, an Analyst at FXStreet, briefs.

EUR/USD has room to extend its falls at the beginning of the new week

“After Spain and Portugal led the upswing, the Netherlands reported a leap of 800% in coronavirus cases, and French President Emmanual Macron is set to address the nation. With most of the vulnerable population already vaccinated – and jabbing moving fast – this wave will likely have a more limited impact on hospitals and may be short-lived. Nevertheless, it is a setback.”

“Infections are up against some 60% in America. As it comes from a low base and is limited to specific parts of smaller states, for now, markets are not paying full attention. That may change and support the dollar. Why? The greenback is a safe haven sought in times of trouble. Overall, Delta is a win-win for the dollar.” 

“At least on Monday, EUR/USD may also suffer from the divergence in monetary policy. European Central Bank President Christine Lagarde gave an interview over the weekend, saying that forward guidance will change in the upcoming July 22 meeting, as part of the ECB's new framework. More importantly, Lagarde hinted that the bank's bond-buying scheme could be extended beyond March 2022, albeit in a new format.”

“EUR/USD is sliding toward the 50 SMA, which hits that price at 1.1848. Further support awaits at 1.1825, a support line from last week, followed by 1.1808, a cushion from early in the month.”

“Some resistance is at 1.1880, the daily high, followed by 1.1890, which was a swing high last week. Further above, 1.19 awaits EUR/USD bulls.”