EUR/USD reverses an intraday dip, flat-lined below mid-1.2100s

• EUR/USD struggled to capitalize on its intraday uptick and remained below YTD tops.
• The intraday pullback remained limited amid a softer tone surrounding the greenback.
• Investors might refrain from placing aggressive bets ahead of the FOMC policy meeting.

The EUR/USD pair dropped around 40-45 pips in the last hour and refreshed daily lows, around the 1.2120 region, albeit lacked follow-through selling.

The pair struggled to capitalize on its intraday positive move to the 1.2165 region and once again, started retreating from the vicinity of YTD tops set earlier this month. This, in turn, might have prompted some long-unwinding trade and was seen as a key factor behind the latest leg of a sudden drop.

However, a softer tone surrounding the US dollar extended some support and helped limit any deeper losses. In fact, the USD Index languished near two-and-half-year lows amid expectations for additional US fiscal stimulus and the optimism over the rollout of vaccines for the highly contagious coronavirus disease.

That said, growing market worries about the continuous surge in new COVID-19 cases and the imposition of fresh restrictions extended some support to the greenback’s safe-haven status. In the latest developments, tighter lockdown restrictions were imposed in London amid the discovery of a new variant of the coronavirus.

On the economic data front, the Empire State Manufacturing Index unexpectedly fell to 4.9 for December and did little to impress the USD bulls. Tuesday’s US economic docket also features the release of Industrial Production figures. The data, however, is unlikely to provide any meaningful impetus to the EUR/USD pair.

Investors might also refrain from placing any aggressive bets ahead of a two-day FOMC monetary policy meeting, starting this Tuesday. This makes it prudent to wait for a sustained move in either direction before positioning for the next leg of a directional move for the EUR/USD pair.

Technical levels to watch