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  • Euro bulls take a breather ahead of ECB decision.
  • ECB to expand bond-buying to boost the economic recovery.
  • US dollar rebound amid the cautious market mood.

Amid a broad-based US dollar rebound, EUR/USD corrects further from three-month highs of 1.1257 ahead of the European open, as the bulls take a breather ahead of the key European Central Bank (ECB) monetary policy decision.

The market mood turned cautious in Asia and re-ignited the haven demand for the US dollar, as the US-China tensions continue to dampen the investors’ sentiment. The US dollar index jumps 0.20% to flirt with daily highs of 97.47, having hit a three-month low at 97.19.

Despite the latest downtick, the main currency pair holds above the 1.1200 barrier, underpinned by the cross-driven strength and expectations that the ECB additional stimulus will likely ramp up the economic recovery.

The overnight drop in the pound, in the wake of the doubts of a likely extension to the Brexit transition and the resultant EU-UK trade deal, drove the EUR/GBP cross nearly 0.20% higher.

Meanwhile, the ECB is widely expected to add about EUR500 billion to its Pandemic Emergency Purchase Programme (PEPP), in another effort to support the coronavirus-stricken economy.

However, further correction in the major cannot be ruled out on the ECB announcement, as the extra stimulus is already priced-in by the markets. Meanwhile, upbeat US jobs data could bolster the US dollar bounce and could likely collaborate with EUR/USD’s move lower.

EUR/USD technical levels to watch

The immediate resistance awaits at 1.1257 (three-month highs), above which 1.1300 remains on sight. On the flip side, the supports are aligned at 1.1171 (5-DMA) and 1.1128 (daily classic S2).

EUR/USD additional levels