The euro-dollar pair shows increased volatility on Tuesday. At the start of the European session, it updated the local price maximum (1.1895), but after a few hours, the price rushed down, marking the level of 1.1823. However, all these impulses did not continue, traders did not enter the area of the 19th figure, but also did not test the boundaries of the 17th price level. The pair is still trading within the range of 1.1800-1.1900, alternately starting from the boundaries of this price corridor in anticipation of a powerful information impulse.
Today's news background is also noteworthy, but its impact may be short-term. So, the pressure on the euro was exerted by the figures from the ZEW institute. The index of sentiment in the German business environment immediately collapsed to 63 points – this is the weakest result since January of this year, when the Germans had just begun to move away from the coronavirus crisis. Experts, of course, expected a negative trend, but, according to their forecasts, the indicator should have decreased by only three points (while in fact, it collapsed by 16 points at once). For comparison, in May, this indicator came out at the level of 84 points, and in June at the level of 79. But this month, the strongest downward pace was recorded in the last six months.
In Europe as a whole, this indicator showed a similar trend. If in June the pan-European ZEW index was at the level of 81.3 points, in July it fell immediately to 61 points. After the spring surge of optimism, when indicators in Germany and the EU as a whole showed steady growth for the first time after the coronavirus strike, this dynamics looks depressing, and this fact had a corresponding impact on the single currency. In one of her recent speeches, ECB President Christine Lagarde admitted that the European economy is "still under threat", including in connection with the spread of a new strain of coronavirus.
The dangerous delta strain is indeed spreading fast in Europe. According to the head of the European division of the World Health Organization, the number of COVID-19 infections in the countries of the European region increased by 10% last week. At the same time, he noted that if the Europeans "do not show discipline," the threat of a new wave of a pandemic will increase in many ways. In turn, the European Centre for Disease Prevention and Control (ECDC) reported that the delta strain of coronavirus, which is more dangerous and more contagious, will account for about 90% of new cases of COVID infection in the European Union by September of this year. Some EU countries are already responding to the threat. In particular, in Portugal, a curfew has been imposed in 45 municipalities (including Lisbon and Porto) since last week. Against the background of such trends, the Israeli Ministry of Health made a resonant statement about the decrease in the effectiveness of Pfizer's vaccine against coronavirus infection and the prevention of mild disease.
In addition to the failed ZEW reports and the threat of the spread of the Indian strain, the euro was also under pressure from another fundamental factor. We are talking about the difficult relations between the European Union and the UK. Today, a high-ranking representative of Brussels again threatened London with a court for continuing violations of the Brexit agreement. Let me remind you that the European Commission launched a legal procedure against the UK in March of this year. The reason was the unilateral decision of London to postpone the implementation of the agreements on Northern Ireland. Brussels accuses the British of making unauthorized amendments to the Agreement, which was concluded the year before last. London has unilaterally extended the transition period for British suppliers of some products and goods to Northern Ireland until the autumn.
At the moment, the European Commission is conducting a so-called "legal proceedings", but this dispute may end in a trial in a Luxembourg court. According to some experts, based on the court's decision, the British can receive significant fines, and a trade war can begin between the UK and the European Union, in which the EU will impose sanctions on British exports. Representatives of the European Commission expressed hope in the spring that the problem would be resolved following the results of bilateral consultations. The European side aimed to solve the problem together with the British side by the end of March.
However, this did not happen as the vice president of the European Commission, Maros Sefcovic, said today, if the UK does not correct violations under the Brexit agreement "in the near future", Brussels will "activate the judicial proceedings". Of course, the pound reacted most sharply to this news. But the European currency was also under pressure against the background of hypothetical prospects of a trade war with Britain.
Given the prevailing fundamental background, it is advisable for traders of the EUR/USD pair to use any more or less large-scale growth of the pair (which does not exceed the resistance level of 1.1970) to open short positions with the first target of 1.1806 (the three-month low reached last week). The support level (the main target of the downward movement) is located below the 1.1750 mark (the lower line of the Bollinger Bands indicator on the daily chart).
