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  • EUR/USD loses further traction and drops below the 1.22 level.
  • The recovery in the greenback keeps the pair under pressure.
  • The Sentix index returned to the positive territory in January.

Sellers remain in control of the sentiment around the European currency, dragging EUR/USD to new 3-week lows in the 1.2165/60 band.

EUR/USD weaker on USD-buying

EUR/USD loses ground for the third session in a row at the beginning of the week, extending the negative mood that emerged in the second half of last week.

In fact, the rebound in the demand for the greenback stays underpinned by the bounce in yields of the key US 10-year note to levels beyond 1.12% during early trade, area last visited in March 2020.

In addition, the relentless advance of the coronavirus pandemic in the region poured cold water over expectations of a strong recovery, helped at the same time by the slower than expected pace in the massive vaccination campaign in the Old Continent.

On another front, speculators trimmed their net longs in the single currency to 3-week lows on the back of the re-emergence of pandemic concerns and its impact on the region’s economy.

In the euro docket, the Investor’s Confidence tracked by the Sentix index improved to 1.3 for the month of January. Additional data saw the Spanish Industrial Production contracting at an annualized 3.8% during November.

Later, ECB’s C.Lagarde will participate in a discussion panel at the One Planet Summit in Paris. Across the pond, FOMC’s voter R.Bostic is due to speak in an otherwise empty calendar.

What to look for around EUR

The upside momentum in EUR/USD run out of steam in the 1.2350 area earlier in the month. In spite of the corrective downside, the outlook for EUR/USD remains constructive and appears supported by prospects of a strong recovery in the region (and abroad), which is in turn underpinned by extra fiscal stimulus by the Fed and the ECB. In addition, real interest rates continue to favour the euro area vs. the US, which is also another factor supporting the EUR along with the huge, long positioning in the speculative community.

EUR/USD levels to watch

At the moment, the pair is retreating 0.47% at 1.2161 and faces immediate contention at 1.2129 (weekly low Dec.21) seconded by 1.2058 (weekly low Dec.9) and finally 1.2032 (23.6% Fibo of the 2017-2018 rally). On the other hand, a breakout of 1.2349 (2021 high Jan.6) would target 1.2413 (monthly high Apr.17 2018) en route to 1.2476 (monthly high Mar.27 2018).