EUR/USD remains on the defensive around 1.2125-20 region, downside seems limited

• EUR/USD witnessed a modest pullback on Friday amid a pickup in the USD demand.
• Cross-driven strength stemming from a strong rally in EUR/GBP extended support.
• Any meaningful pullback is likely to remain limited and seen as a buying opportunity.

The EUR/USD pair traded with a mild negative bias through the early North American session and was last seen hovering near daily lows, around the 1.2120 region.

The pair failed to capitalize on its early uptick, instead met with some fresh supply near the 1.2165 area amid a modest pickup in the US dollar demand. The impasse over the next round of the US fiscal stimulus dented investors’ confidence. This was evident from a weaker trading sentiment around the equity markets, which, in turn, drove some haven flows towards the greenback.

The USD uptick, however, lacked any obvious fundamental catalyst and remained limited. This, along with some cross-driven strength stemming from a strong rally in the EUR/GBP, extended some support to EUR/USD pair. The British pound witnessed some aggressive selling on the last trading day of the week and was pressured by growing worries about the possibility of a no-deal Brexit.

Meanwhile, the rollout of vaccines for the highly contagious coronavirus disease now seems to have lifted expectations for a swift global economic recovery. This, in turn, might further collaborate towards capping any meaningful upside for the buck. Hence, any corrective pullback for the EUR/USD pair is more likely to be shallow and might still be seen as a buying opportunity.

On the economic data front, the softer-than-expected release of US Producer Price Index (PPI) for November did little to impress the USD bulls and passed largely unnoticed. Friday’s US economic docket also features the revised version of the Michigan Consumer Sentiment Index, though is unlikely to provide any meaningful impetus to the EUR/USD pair.

Technical levels to watch