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  • EUR/USD has reversed the initial pullback to the 1.1120 region.
  • Risk aversion remains firm and weighs on the dollar and yields.
  • US Non-farm Productivity, Unit Labor Costs missed estimates in Q4.

After bottoming out in the 1.1120 area during early trade, EUR/USD has managed to regain poise and is now testing the proximity of the key barrier at 1.12 the figure.

EUR/USD looks to risk trends, coronavirus

EUR/USD has left behind Wednesday’s positive session and is extending the rebound from the 1.1100 neighbourhood, where some solid support has turned up in the last couple of sessions. This area of contention is also reinforced by the critical 200-day SMA, today at 1.1098.

The persistent selling bias in the greenback remains the exclusive driver of the pair’s upside to levels last seen in early October near the 1.1200 mark, always on the back of still increasing speculations of another reduction of the FFTR by the Fed at the March 17-18 meeting (adding to Tuesday’s 50 bps rate cut).

In the docket, US Non-farm Productivity and Unit Labor Costs expanded 1.2% and 0.9% inter-quarter in Q4, both prints coming in short of expectations. Further data saw Initial Claims rising at a weekly 216K and taking the 4-Week Average to 213.00K from 209.75K. Later, Factory Orders for the month of January will close the daily calendar across the pond.

What to look for around EUR

EUR/USD came under pressure following weekly/monthly tops beyond the 1.1200 mark. In the meantime, the ECB remains vigilant and ready to act in case the outlook deteriorates further in response to the coronavirus and particularly after the Fed cut rates on Tuesday. On another front, the ECB is expected to finish its “strategic review” (announced at its January meeting) by year-end, leaving speculations of any change in the monetary policy before that time pretty flat. Further out, recent better-than-expected results in both Germany and the broader Euroland appear to have re-ignited some optimism among investors regarding the possibility of some recovery in the region and the currency. This view is also supported by rumours of fiscal stimulus in Germany.

EUR/USD levels to watch

At the moment, the pair is gaining 0.47% at 1.1186 and faces the initial hurdle at 1.1213 (weekly/monthly high Mar.3) seconded by 1.1239 (monthly high Dec.31 2019) and then 1.1249 (monthly high Aug.6 2019). On the downside, a breakdown of 1.1097 (200-day SMA) would target 1.1037 (55-day SM) en route to 1.0992 (monthly low Jan.29).