The central bank may voice its concerns over the common currency surge, which is undermining the modest economic recovery
The euro has extended the impressive rally to 1.2125 so far on Thursday. Having exceeded the 1.2100 figure, the common currency looks poised for further gains within its strong bullish trend despite the overbought conditions. The main reason behind the euro’s strength is the ongoing massive sell-off in the greenback that continues to lose its appeal amid upbeat risk sentiment. Risky assets are in demand due to positive developments surrounding vaccines and the renewed optimism over the fiscal stimulus package in the United States.
Against this backdrop, the USD index plunged to the lowest levels since April 2018 and keeps struggling nearly across the board. Also on the negative side, the incoming economic reports out of the US continue to point to a slowing recovery in the world’s largest economy. Later today, traders will focus on the services PMI report and the weekly jobless claims data ahead of the key employment report due on Friday. If the figures disappoint again, the dollar could see further losses amid more signs of a weak economy.
Meanwhile, the euro’s strength could trigger verbal intervention from the ECB if the current rally continues in the days to come. The central bank may voice its concerns over the common currency surge, which is undermining the modest economic recovery amid the pandemic and exerts downward pressure on inflation in the region. If so, the verbal intervention could contain the ongoing rapid rise in the common currency. The question is at which point the monetary authorities will enter the game.
So far, EURUSD looks poised for another breakout towards 1.2185. However, considering the threat of interventions coupled with the overbought signals, a bearish correction could take place as well. In this scenario, the pair may retreat below 1.2100, with the key support arriving at 1.2000.