EUR/USD drops further and challenges 1.1800

• EUR/USD loses the grip and put 1.18 to the test.
• US Initial Claims rose more than forecasted WoW.
• Discussions around extra stimulus remain stalled, said the government.

The selling pressure around the single currency is picking up pace on Thursday and is now dragging EUR/USD to record weekly lows in the 1.18 neighbourhood.

EUR/USD weaker on USD-recovery

The better mood surrounding the greenback maintains the downside pressure on the risk complex and forces EUR/USD to trade in the area of weekly lows near 1.18 the figure, or 4-day lows.

The correction lower in EUR/USD comes in response to recent overbought conditions as well as the bearish divergence in the daily RSI, all following the sharp rally seen in July-August.

Investors are once again favouring the greenback after the Philly Fed manufacturing gauge came in short of expectations at 17.2 in August and weekly Claims rose more than forecasted, this time by 1.106 million. In addition, the labour market report still showed that almost 15 million Americans remain under unemployment insurance benefits.

Further out, markets are not giving that much credit to recent comments by White House Adviser L.Kudlow, who said the economy could expand 20% in Q3 and Q4, while the stock markets could be rightly anticipating a “V”-shaped rebound in the economic activity.

What to look for around EUR

EUR/USD is coming under pressure after hitting fresh tops near 1.1970 earlier in the week. The July-August rally, while largely triggered by broad-based dollar-selling and improved sentiment in the risk-associated universe, found extra sustain in auspicious results from domestic fundamentals, which have been in turn supporting further the view of a strong economic recovery following the coronavirus crisis. Also lending wings to the momentum around the euro appear the deal on the European Recovery Fund – which helped putting political fears within the bloc to rest (for now) – and the solid position of the current account in the region.

EUR/USD levels to watch

At the moment, the pair is losing 0.14% at 1.1820 and faces the next support at 1.1695 (monthly low Aug.3) followed by 1.1495 (monthly high Mar.9) and finally 1.1448 (50% Fibo of the 2017-2018 rally). On the upside, a breakout of 1.1965 (2020 high Aug.18) would target 1.1996 (high May 14 2018) en route to 1.2032 (23.6% Fibo of the 2017-2018 rally).