The upside potential for the euro is capped by the fact that the level of infections remains high within Europe for the time being
The euro proceeded to recovery following a two-day slide that brought the EURUSD pair to 1.5-week lows around 1.2025 on Wednesday. Today, the common currency bounced as the dollar came back under the selling pressure. The pair was last seen trading around 1.2070, potentially targeting the 20-DMA, today at 1.2092.
The USD index gives away some of its recent gains and drops below the 91.00 handle as the US 10-year Treasury yields stabilized following another rally witnessed after strong retail sales and upbeat comments from Biden on vaccination. Beside, traders’ perception of higher inflation pushed the yields higher along with the greenback. Still, the US currency failed to preserve its upside momentum and could continue to erase recent gains in the short term.
Of note, the US jobless claims and construction sector data could lift the USD later today if the figures surprise to the upside. In this scenario, EURUSD may get back to local lows and even threaten the 1.2000 support zone. However, a deeper retreat looks unlikely at this stage despite the risk sentiment has deteriorated recently.
Also, traders will focus on the ECB meeting minutes, as a dovish tone from the central bank could bring the common currency back under the selling pressure. In a wider picture, the upside potential for the euro is capped by the fact that the level of infections remains high within Europe for the time being.
From the technical point of view, the key target for euro bulls is represented by the mentioned 20-daily moving average as well as by the 1.2100 handle. As long as the pair stays below this level, upside potential remains limited. On the downside, the immediate support is now represented by the 1.2020 zone, followed by the 1.2000 thresholds. Just below this level, the ascending 100-DMA lies. Loss of this support would mark deterioration in the short-term technical picture.