The euro is down slightly in the Wednesday session. Currently, EUR/USD is trading at 1.2024, down 0.16% on the day.
1.20 level under pressure
The euro put together an impressive rally in the final two months of 2020, with gains of around five percent against the US dollar. However, the greenback has bounced back in the new year, with gains of 0.60% in January and 0.90% early in February. Earlier in the day, EUR/USD dropped to 1.2004, its lowest level in 2021. We could see the euro drop below the symbolic 1.20 as early as Thursday.
The euro’s woes early in the year are not all that surprising, keeping in mind the grim economic conditions in the eurozone. The resurgence of Covid, with new strains of the virus, have resulted in more lockdowns which have hampered economic activity, in particular the services sector. The rollout of Covid vaccines in the eurozone has been slow and inefficient, which will make the recovery from Covid even more lengthy. The eurozone may already be in recession, with declines expected in GDP in Q4 of 2020 as well as Q1 of this year. The once-mighty German locomotive is also stumbling. Earlier the week, German retail sales came in at -9.6%, much worse than the consensus estimate of -2.0%. This points to a sharp downturn in consumer spending, a key driver of economic growth.
There was some positive news on Wednesday, as January Eurozone CPI rebounded and beat expectations. Headline inflation jumped 0.9%, ending a nasty streak of five consecutive declines. The core reading jumped from 0.2% to 1.4%. Still, the euro shrugged off the solid inflation numbers and is in red territory on Wednesday.
- EUR/USD faces resistance at 1.2193. Above, there is resistance at 1.2250
- 1.2002 is under strong pressure, followed by support at 1.1945
- The 50-MA line remains relevant, at 1.2133
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