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  • EUR/USD keeps the offered bias well and sound on Tuesday.
  • German Retail Sales contracted 4.5% MoM in January.
  • EMU’s flash CPI expected to rise 1.2% YoY in February.

Sellers remain largely in control of the sentiment surrounding the European currency and drag EUR/USD to fresh multi-week lows in the 1.1990 region.

EUR/USD weaker on USD-strength

EUR/USD sheds ground for the third session in a row and breach the key psychological support at 1.20 the figure on turnaround Tuesday.

As usual in past sessions, the improved sentiment surrounding the greenback keeps the pair under heavy downside pressure and forced it to shed more than 2 cents since last week’s tops well beyond the 1.2200 mark (February 25).

As the reflation/vaccine trade appears to lose ground as a driver for further upside in the risk complex, strong prospects of US growth plus rising perception by investors of a pick-up in inflation in the medium term have lent extra oxygen to the buck and propelled DXY to new multi-week peaks beyond 91.00 the figure.

In the euro docket, German data showed Retail Sales contracting at a monthly 4.5% during January. Still in Germany, the jobless rate stayed unchanged at 6.0% in January and the Unemployment Change ticked higher by 9K during last month. In the broader Euroland, the CPI is seen rising at an annualized 1.3% in February, more than initially expected.

In the US data space, the IBD/TIPP index will be the sole release later in the NA session along with speeches by FOMC’s L.Brainard (permanent voter, dovish) and San Francisco Fed M.Daly (voter, centrist).

What to look for around EUR

EUR/USD continues its march south after being rejected from recent highs in the 1.2240 region. The underlying bullish sentiment in the euro remains under pressure for the time being amidst investors’ adjustment to potential US inflation and the subsequent increase in yields and the demand for the dollar. Looking at the medium/longer-run, the outlook for the pair remains constructive on the back of prospects of extra fiscal stimulus in the US, real interest rates favouring Europe vs. the US and hopes of a solid economic rebound in the next months.

Eminent issues on the back boiler: EUR appreciation could trigger ECB verbal intervention, always amidst the current (and future) context of subdued inflation. Potential political effervescence around the EU Recovery Fund. Huge long positions in the speculative community.

EUR/USD levels to watch

At the moment, the index is losing 0.33% at 1.2009 and faces immediate contention at 1.1991 (weekly low Mar.2) followed by 1.1976 (50% Fibo of the November-January rally) and finally 1.1952 (2021 low Feb.5). On the upside, a breakout of 1.2140 (5-0-day SMA) would target 1.2243 (weekly high Dec.17) en route to 1.2349 (2021 high Jan.6).

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