The EUR/USD pair ended the last five days in positive territory - at the level of 1.1875, having managed to recoup its recent losses largely due to the weakening of the greenback on a wide front.
Last Friday, the US currency continued to retreat from three-month highs and came close to the key support in the area of 92.00 points.
The fall in the USD exchange rate was probably caused by profit-taking on the eve of the release of important macro statistics for the United States, including inflation data for June.
However, on Monday, the dollar returned to growth after declining during the previous two trading days. At the same time, the main currency pair was again under pressure.
The new variant of COVID-19 "Delta" continues to spread on both sides of the Atlantic. If this is definitely bad news for the euro, then it is good news for the defensive greenback.
After Spain and Portugal topped the list of European countries with a growing number of coronavirus infections, the Netherlands reported an 800 percent jump in the number of new cases.
Most of the vulnerable population of the Old World has already been vaccinated. This, along with the rapid promotion of the immunization campaign in the EU, allows fans of the single currency to hope that the impact of the new wave of the disease on the local health system will be milder. Nevertheless, the current situation looks like a rollback.
In the United States, the incidence of COVID-19 has jumped by 60%. Since the growth occurred on a low base and is limited to parts of small states, market participants are not paying much attention to this issue yet.
The EUR/USD pair also suffered from the dovish comments of European Central Bank President Christine Lagarde.
Over the weekend, she said that the regulator will outline new guidelines for the future direction of monetary policy at the upcoming meeting on July 22. More importantly, Lagarde hinted that the ECB's bond-buying program could be extended, although changes will be made to it.
According to her, the PEP program, which amounts to $1.85 trillion, will be in effect at least until the end of March 2022. In the future, the ECB may switch to a new format.
Lagarde also said that at present she sees no need to discuss the question of when the ECB will start curtailing emergency stimulus measures, since she is cautiously optimistic about the prospects for the recovery of the European economy in the conditions of the rapid spread of the new COVID-19 "Delta" strain in the eurozone.
"We should not create expectations that the ECB will begin to scale back stimulus in the next few weeks or months," she said.
These comments sounded much clearer than what the ECB president said last Thursday when she presented the new strategy of the regulator. As a result, the EUR/USD pair turned down. On Monday, it sank to local lows around 1.1838. Meanwhile, the greenback, as if shaking off the recent weakness, attracted buyers near 92.00 and rushed to the area of 92.35–92.40.
This week, Lagarde's colleague, Federal Reserve Chairman Jerome Powell, will address the US Congress on Wednesday and Thursday with a semi-annual report on the monetary policy of the central bank.
If the head of the US central bank points to an improvement in the situation in the national economy, which justifies the regulator's move to reduce monetary incentives, this will support the dollar.
If, however, Powell will confirm the Fed's patient position, especially in light of the fact that the latest report on applications for unemployment benefits and business surveys in the US turned out to be weaker than forecasts, this is fraught with a weakening of the USD.
Before Powell's speech, the United States will publish inflation figures for June on Tuesday. Analysts expect a slowdown in consumer price growth in monthly terms, which may also cause a drawdown of the greenback.
So far, the US currency remains combative, leaving the EUR/USD pair under pressure.
Monday's economic calendar is not eventful, so the main currency pair is trading under the influence of the dynamics of the dollar and the demand for risk.
Strong resistance was noted at 1.1920 (the level of the 61.8% Fibonacci retracement of the March–May rally). A breakdown of this level will help the pair to develop growth in the direction of the psychologically important mark of 1.2000, and its breakthrough will allow the bulls to regain control of the situation. Meanwhile, in the case of a decline below 1.1780, the pair may head to the March lows around 1.1712.
The material has been provided by InstaForex Company - www.instaforex.com