Euro drifting as Powell talks dovish

The euro is unchanged in the European session. Currently, EUR/USD is trading at 1.2154, up 0.02% on the day.

German GDP posts small gain

Germany is the eurozone’s largest economy and has traditionally been the locomotive that leads the bloc in economic growth. With the eurozone grappling with the devastating effect of the Covid pandemic, Germany is again being counted on to lift the eurozone to recovery. Germany’s GDP for Q4 of 2020 showed negligible growth, although the gain of 0.3% managed to beat the street estimate of 0.1%. This follows a sharp gain of 8.5% in Q2, although that reading came after a decline of -9.7% in the first quarter.

With strict lockdowns in the eurozone keeping consumers at home and hampering their ability to spend euros, it’s no surprise that inflationary pressures are getting stronger. Earlier in the month, German CPI for January climbed sharply, and this was repeated in the eurozone on Tuesday. Eurozone CPI rose from -0.3% to 0.9%, while the core reading climbed to 1.1%, up from 0.2%. The strong numbers did not give the euro a boost, however, as they matched the street consensus. Still, the headline reading was certainly impressive, as it ended a nasty streak of four consecutive declines.

In the US, the spotlight remains on the Federal Reserve, as Fed Chair Powell testified before Congress on Tuesday, and will do so again today. The Fed is committed to an ultra-easy monetary policy and this was reiterated by Powell, who poured cold water on any expectations that the Fed was planning to taper its QE scheme. Powell sought to reassure the markets that the Fed would act carefully, slowly and that any moves would be telegraphed well in advance.

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EUR/USD Technical

EUR/USD remains rangebound for a second straight day.

• EUR/USD faces resistance at 1.2184. Above, there is resistance at 1.2251
• There is support at 1.2037. This is followed by a support line at 1.1957
• The pair continues to put pressure on the 50-day moving average (MA), situated at 1.2153

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