The euro remains vulnerable to further losses in the near term as USD bulls continue to dominate the market
The US dollar rallied to fresh March 2020 highs on Monday amid a combination of the elevated geopolitical uncertainty, rising bets on more hawkish Fed, and worsening COVID situation in China as authorities introduce new lockdowns, this time in Beijing. Rising coronavirus cases in the country triggered massive risk aversion across the globe at the start of the week, pushing the safe-haven greenback to fresh long term tops around 101.75 earlier in the day. The buck has retreated to the 101.50 zone since then, staying resilient in early European trading hours.
After a dramatic plunge in Asia, European stock markets opened sharply lower today while US stock index futures look set to extend the decline from Friday, suggesting safe-haven flows will continue to push the buck higher in the near term. Also, traders are shifting focus to the Fed meeting due next week, with expectations for a 50bp rate hike rising, adding to a bullish tone surrounding the dollar.
Against this backdrop, EURUSD plunged to fresh march 2020 lows just above the 1.0700 figure earlier in the day. The pair managed to trim some losses since then to bounce towards 1.0750 in recent trading as the overbought USD came off peaks. Also, the common currency cheered the report that Germany IFO’s economists do not see a risk of recession in the first quarter. As for the data, the headline German IFO Business Climate Index unexpectedly climbed to 91.8 this month versus 90.8 in March, exceeding the consensus estimates of 89.1.
Still, the euro remains vulnerable to further losses in the near term as USD bulls continue to dominate the market ahead of the Fed meeting. Now that the dollar index climbed to 101.75, the next bullish target could be expected at 102.00 while the 2020 peak arrives at 103.00.