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  • EUR/USD fades Tuesday’s pullback and retests 1.2170.
  • German Q4 GDP came in at -3.7%, above consensus.
  • Chief Powell will testify again before Congress later on Wednesday.

The single currency regains some composure and lifts EUR/USD to the 1.2170 region once again, where it met some decent resistance (once again…).

EUR/USD bid on risk-on mood

EUR/USD quickly leaves behind Tuesday’s small downtick and regains the 1.2170 region, although a break of this area still remains elusive for EUR-bulls.

The positive performance of EUR/USD comes in response to the sour sentiment in the dollar, particularly after Chief Powell reinforced the continuation of the current dovish stance from the Federal Reserve. Powell’s semiannual Monetary Policy Report reiterated that both inflation and the labour market run well below the Fed’s target and support further the view that an interest rate hike is still far away.

In the euro docket, German final GDP figures noted the economy expanded 0.3% QoQ during the October-December period, surpassing initial estimates. Still in the euro area, France’s Business Confidence improved a tad to 97 for the current month, albeit below the 99 expected.

Across the pond, MBA will publish its weekly figures for Mortgage Applications seconded by New Home Sales and the EIA’s weekly report on crude oil inventories.

In addition, Fed’s Powell will once again take centre stage following another testimony, this time before the House Financial Services Committee. Furthermore, FOMC’s L.Brainard (permanent voter, dovish) is due to speak, while Vice Chair R.Clarida (permanent voter, dovish) will speak on “US Monetary Outlook and Monetary Policy”.

What to look for around EUR

EUR/USD manages well to keep business above the 1.2100 mark so far, facing usual resistance near the critical 1.2200 mark. The constructive outlook for the pair, however, is expected to remain unchanged in the longer run, always supported by the reflation/vaccine trade and hopes of a strong recovery in the region. 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.

Key events in Euroland this week: European Council meeting (Thursday and Friday). ECB’s Lagarde will participate in the G20 meeting of central bank governors and finance ministers on Friday

Eminent issues on the back boiler: EUR appreciation could trigger ECB verbal intervention, always on inflation issues. EU Recovery Fund. Huge long positions in the speculative community.

EUR/USD levels to watch

At the moment, the index is gaining 0.03% at 1.2152 and a breakout of 1.2180 (weekly high Feb.23) would target 1.2189 (weekly high Jan.22) en route to 1.2349 (2021 high Jan.6). On the downside, the next support at 1.2023 (weekly low Feb.17) followed by 1.2008 (100-day SMA) and finally 1.1952 (2021 low Feb.5).

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