EUR/USD set for more damage

The euro dropped to more than 16-month lows versus the dollar Monday and is in for more pain after crashing through crucial support amid expectations for European central banks to remain dovish.

EUR/USD dropped 0.59% to $1.1383.

In a hearing at the European Parliament’s Committee on Economic and Monetary Affairs, ECB President Christine Lagarde repeated that the ECB proceeds to expect inflation to remain under target in the medium-term. Moreover, it is highly unlikely to be cooperative with rate hikes next year.

According to Lagarde, when purchasing power was previously being squeezed by higher energy and fuel bills, an extreme tightening of financing conditions is not helpful. It would describe an unwarranted headwind for the recovery.

Rising concerns over the setback

The remarks came amid growing concerns that the European Union economy could experience a setback. This could result from parts of Europe, including the Netherlands and Austria, having turned to partial lockdowns to control a surge in coronavirus cases.

Germany, the most productive EU nation, wants to plan national restrictions for the unvaccinated.

Commerzbank stated that new lockdowns in Europe fuel growth concerns. After noting the risk of further downside, the EUR/USD tested critical support of $1.1420 before breaking lower.

Others acknowledge and see EUR/USD dropping to $1.13 by the end of November.

ING said in a note that last week marked EUR/USD breaks under 1.1500. Hence, they think there is no place for the pair to settle to the 1.1300 level.

Nevertheless, the most advanced positioning data implies that traders are betting on rest. They are betting for the single currency after cutting their bearish bets.

Speculative bets versus the euro dropped to five-week lows. The net position on open interest reflected further and flirted with the positive territory, as stated in the Commodity Futures Trading Commission Positioning Report for the week closed Nov. 2.