EUR/USD remains weak and drops to lows near 1.2120

• EUR/USD adds to the weekly drop near 1.2120.
• The sentiment remains tilted to the risk aversion.
• US Retail Sales, Consumer Sentiment will be in the limelight.

The offered bias around the single currency stays unchanged for yet another session and drags EUR/USD to the 1.2120 zone on Friday.

EUR/USD looks supported near 1.2100 so far this week

EUR/USD loses ground for the third consecutive session at the end of the week and always on the back of the moderate improvement surrounding the dollar.

The recent downside in the par has been exacerbated by dovish comments from ECB officials regarding the appreciation of the exchange rate in recent weeks and its impact on the inflation. This view was later reinforced by the ECB Accounts published on Thursday.

On the political front, albeit with marginal impact on the FX universe so far, Italian politics is back to the fore after many ministers resigned in disagreement with policy measures adopted by PM Conte in past days. These developments are unlikely to trigger snap elections in the country, at least for the time being.

In the euro docket, ECB’s Andrea Enria will participate in a virtual workshop ahead of November’s Trade Balance figures. Across the pond, the calendar looks pretty interesting with the release of Retail Sales, Industrial Production, Producer Prices, the NY Empire State Index and the flash gauge of the U-Mich index for the month of January.

What to look for around EUR

The upside momentum in EUR/USD run out of steam in the 1.2350 area earlier in the month. In spite of the corrective downside, the outlook for EUR/USD remains constructive and appears supported by prospects of a strong recovery in the region (and abroad), which is in turn underpinned by extra fiscal stimulus by the Fed and the ECB. 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.

EUR/USD levels to watch

At the moment, the pair is losing 0.11% at 1.2137 and faces the next support at 1.2111 (2021 low Jan.14) seconded by 1.2058 (weekly low Dec.9) and finally 1.2032 (23.6% Fibo of the 2017-2018 rally). On the flip side, a break above 1.2349 (2021 high Jan.6) would target 1.2413 (monthly high Apr.17 2018) en route to 1.2476 (monthly high Mar.27 2018).