Daily Market Recap – EURUSD Euro tries to rebound from major support

The EURUSD has been trying to rebound since Friday after returning to test a major support oblique last Thursday following the economic fears posed by the spread of the Delta variant.

Indeed, risky/cyclical assets were under pressure for most of last week and experienced a slight sell-off last Thursday following the Japanese government's decision to place Tokyo under a state of emergency for the fourth time since the pandemic began, preventing the Olympic Games from being held with spectators.

Investors are concerned that the spread of the Delta variant in Europe and Asia will cause authorities to tighten health restrictions again, which would put a damper on the economic recovery. Nevertheless, the vaccines appear to be effective for the time being, giving reason to be optimistic about the health situation in Europe. Despite the rise in infections, hospitalizations remain low in the most vaccinated countries such as the UK.

Investors will continue to closely monitor the health situation, especially hospitalization data, which is more indicative of future health restrictions. As long as hospitalizations remain low, 'cyclical' currencies like the euro are more likely to outperform vs the dollar.

On top of the health situation, market participants will be monitoring closely the key reports of the week starting in the US with the Fed's Beige Book, industrial production, retail sales, and manufacturing indexes from the New York and Philadelphia Fed, then shifting over to China where we will have the first estimate of the second-quarter GDP as well as the trade balance, and lastly from the Eurozone: industrial production and inflation figures.

From a technical analysis point of view, the outlook for EURUSD became bullish again on Friday as the exchange rate exited the descending wedge at the top. This breakout from the top of the downtrend paves the way for EURUSD to rebound to $1.20 in the near term, and then eventually to the June high of $1.2243.

(Chart Source: Tradingview 12.07.2021)

Note that the EURUSD rebound began on Thursday after the exchange rate returned to test a bullish oblique that runs through the November 2020 and March 2021 lows. This uptrend line is extremely important, as a pullback below it would cause the exchange rate to form a bearish “head and shoulders” reversal pattern, which would pave the way for a bearish reversal in EURUSD to around $1.10.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.