EUR / USD set to end the week on a sour note, falls sharply below 1.2100 again

• EUR / USD is ending the week on a sour note and has fallen back below 1.2100.
• Buying the USD at the end of the month is the main driver, but the ECB’s dovish rhetoric is not helping.
• What seemed like a promising week for the euro is ending on a sour note.

  Having hit seven-week highs at 1.2240 on Thursday (up from 1.0% at the time), the currency pair has reversed sharply and is now back below the 1.2100 mark and at new lows for the week at the 1.2070. On the day, the EUR/USD It is down about 0.75% or around 90 pips. That means your losses for the week are around 0.3% or close to 40 pips.

ECB officials have flagged the dovish rhetoric and this appears to be weighing on the euro on Friday, although USD buying at the end of the month appears to be the main driver; Risk-sensitive AUD, NZD and CAD are suffering further on the day against the US dollar, down 1.9%, 1.6% and 0.9% respectively. Also, on the week, the euro is actually the best performing G10 currency against the dollar, with the British pound in second place, down 0.4%.

Moderate ECB signals more incoming QE

Since the beginning of the week, the ECB has been the most dovish sound of major developed market central banks on the recent surge in long-term government bond yields. On Monday, ECB President Christine Lagarde said the ECB will closely monitor long-term interest rates. Throughout the week, many other ECB officials reiterated the same line, all hinting at possible action.

But on Friday, ECB Governing Council member Yannis Stournaras took another step towards becoming the first ECB member to make a strong call for an increase in the rate at which the ECB buys government bonds to address what he called an “unjustified tightening of financial conditions.” The Greek central banker said there is no fundamental justification for a tightening of long-term nominal bond yields.

Euro traders will be closely watching the release of weekly data from the Pandemic Emergency Buying Program next Tuesday for signs that the bank stepped up its bond buying efforts this week. Signs that the pace of asset purchases has increased could be taken as a dovish signal and hurt the euro against currencies whose central banks have taken a more optimistic view of the recent rally in bond yields (such as the USD and the GBP).

Technical Levels