- EUR / USD rebounds from Tuesday’s pullback and retests the 1.2170 region.
- Germany’s fourth-quarter GDP was -3.7%, above expectations.
- President Powell will testify again before Congress later Wednesday.
The common currency has regained some composure and has lifted the EUR / USD pair to the 1.2170 region once again, where it has again encountered decent resistance. At the time of writing, the pair has pulled back and is holding onto daily gains around the 1.2150 region.
EUR / USD remains firm with risk appetite in the markets
EUR / USD has quickly outpaced the small downward move on Tuesday and has rallied back to the 1.2170 region, although a breakout of this area remains elusive for the pair’s bulls.
The positive performance of the EUR / USD occurs in response to bitter sentiment around the US dollar, particularly after Fed Chairman Powell reinforced the continuation of the Fed’s current dovish stance. Powell’s Semi-Annual Monetary Policy Report reiterated that both inflation and the labor market are well below the Fed’s target, further supporting the view that an increase in interest rates is still a long way off.
Regarding the euro data, final German GDP figures have indicated that the economy expanded by 0.3% quarter-on-quarter during the October to December period, exceeding initial estimates. Still in the euro area, French business confidence improved a bit to 97 points for the current month, although below the 99 expected.
Across the Atlantic, MBA will release its weekly mortgage application figures followed by new home sales data and the EIA’s weekly report on crude oil inventories.
Fed Chairman Jerome Powell will testify again, this time before the House Financial Services Committee. Additionally, L. Brainard of the FOMC and Vice President R. Clarida have speeches scheduled.
What can we expect around the EUR?
EUR / USD remains above the 1.2100 level so far, facing the usual resistance near the critical 1.2200 level. However, the constructive outlook for the pair is expected to remain unchanged in the long term, always supported by the expectations of the reflation trade, the hopes of a strong recovery in the region (and abroad), which in turn is sustained on additional fiscal stimulus from the Fed and the ECB along with hopes of an acceleration in the launch of coronavirus vaccines. In addition, real interest rates continue to favor the euro area against the US, which is also another factor supporting the common currency along with the huge long-term positioning in the speculative community.
Key events in the eurozone this week: Meeting of the European Council (Thursday and Friday). Lagarde will participate in the G-20 meeting of central bank governors and finance ministers on Friday.
Eminent Background Topics: The appreciation of the EUR could trigger a verbal intervention by the ECB on inflation problems. The EU Recovery Fund. Italian politics. Large bullish positions in the speculative community.
EUR / USD technical levels
At the time of writing, the EUR / USD pair is gaining 0.03% on the day, trading at 1.2152. A breakout of 1.2180 (Feb 23 high) would target 1.2189 (Jan 22 high) on the way to 1.2349 (Jan 6 high). On the downside, the next support is at 1.2023 (Feb 17 low), followed by 1.2008 (100-day SMA) and finally 1.1952 (Feb 5 low).
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