• EUR/USD has continued to struggle to get close to the 1.1800 level, with gains petering out around the 1.1790 area.
• Continued concerns about lockdown and the Coivd-19 pandemic in the Eurozone mean that it is unsurprising to EUR struggle.

EUR/USD has continued to struggle to get close to the 1.1800 level, with gains petering out around the 1.1790 area on Tuesday, but the price action remaining well support above last week’s 1.1760 lows. Rangebound trade is not really surprising given a lack of fresh fundamental drivers this Monday and with a batch of key events expected to shake things up later in the week. At present, the pair trades with modest losses of just over 10 pips or about 0.1% on the day.

Driving the day

Continued concerns about the lockdown and the trajectory of the pandemic in the Eurozone mean that it is unsurprising to see the euro struggle to gain traction against its US dollar counterpart on Monday. German Chancellor Angela Merkel reportedly does not see the lockdown restrictions in many states as sufficient to contain the third Covid-19 wave and is reportedly threatening to impose federal law to ensure restrictions are tough enough. Meanwhile, high infection rates in most EU countries mean lockdown eases remains a distant prospect for many countries.

But concerns that pre-mature reopening is driving what could be the start of the third wave of Covid-19 cases in the US (or that is how US NIH Director Anthony Fauci put it anyway) are growing. The US Centre for Disease Control and the White House have expressed concerns, and both are likely to put pressure on state governors not to reopen too fast or to even backtrack no some reopening measures. If the recent uptick in infections in the US does take a nasty turn, as happened in Europe over the last few weeks, then this could dent US growth expectations for 2021,which would in theory be USD negative. But USD may be able to fall back on its status as a safe-haven asset to save the day, at least versus the likes of the euro where the economic outlook will remain significantly worse even if there is a third wave in the US (mostly due to the lack of fiscal stimulus in Europe).

In other notable news for EUR/USD, the newest Fed member Chris Waller (who is a voter) gave his first speaking appearance. Waller noted that the Fed would respond to a disorderly rise in US government bond yields, but said that the recent rise in yields is not disorderly. Moreover, in a similar sentiment to other Fed members, Waller said that the recent move higher in yields is a reflection of the fact that the US economy is improving. He said that while Yields Curve Control is an available took for the Fed, “there are lots of tools you don’t need to pull out”. Finally, Waller noted that the Fed is a long way from raising rates.