EUR/USD drops further and records new lows near 1.0670

• EUR/USD remains depressed and breaches the 1.0700 mark.
• The greenback climbs further and trades in fresh cycle peaks.
• Investors’ attention will be on the US Consumer Confidence.

Pessimism around the single currency continues to build up and drags EUR/USD to new lows in the 1.0670 region on turnaround Tuesday.

EUR/USD depressed on risk-off sentiment

EUR/USD sheds ground for the fourth consecutive session on Tuesday on the back of the intense march north in the greenback, which in turn has propelled the US Dollar Index (DXY) to new cycle tops in the boundaries of the 102.00 yardstick.

The persistent depreciation of the euro comes in line with the broad-based selling bias in the rest of the risk-linked galaxy, all in response to geopolitical jitters and concerns over a probable slowdown of the Chinese economy in light of the so far unabated progress of the coronavirus pandemic.

Also collaborating with the downtrend in the pair appears the rising speculation that the US economy could slip back into recession led by a tighter normalization of the Fed’s monetary conditions.

The persevering risk aversion, in addition, continues to put yields on both sides of the ocean under further downside pressure, with the US 10y benchmark returning to the 2.80% area and the 10y German bund hovering around 0.85%.

Nothing scheduled data wise in Euroland on Tuesday should leave all the attention to the US calendar, where the Conference Board’s Consumer Confidence will take centre stage seconded by Durable Goods Orders, the FHFA’s House Price Index and New Home Sales.

What to look for around EUR

EUR/USD’s price action shows further deterioration and revisits the sub-1.0700 area, opening the door at the same time to a potential visit to the 2020 low in the 1.0630 zone sooner rather than later. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates before the end of the year, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Germany GfK Consumer Confidence (Wednesday) – ECB 2021 Annual Report, Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany, EMU Flash Q1 GDP Growth Rate, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Second round of the presidential elections in France (April 24). Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.22% at 1.0687 and a break below 1.0672 (2022 low April 26) would target 1.0635 (2020 low March 23) en route to 1.0569 (low April 10 2017). On the upside, the next hurdle appears at 1.0936 (weekly high April 21) seconded by 1.1000 (round level) and finally 1.1038 (55-day SMA).