EUR/USD eyes break above 1.20

• EUR/USD hit a high of 1.1997 during the Asian trading hours. 
• The dovish Fed and sign of recovery in the German economy favor a break above 1.20. 

EUR/USD looks set to beat the psychological hurdle of 1.20 for the first time since May 2018 amid relentless sell-off in the US dollar. 

At press time, the pair is trading near 1.1990, representing a 0.45% gain on the day, having almost tested the psychological hurdle of 1.20 during the Asian trading hours. 

Dollar remains on the offer

The Federal Reserve now has more room to keep rates low for long periods, having recently adopted average inflation targeting. Under the new strategy, the US central bank would tolerate above-2% (target) inflation before raising rates. 

Additional bearish pressures for the US dollar could be stemming from the upbeat China manufacturing PMIs released this week and heightened prospects for faster recovery in the world's second-largest economy. 

The euro side of the story has also strengthened in the past 24 hours, with  Germany avoiding negative inflation print in August despite the negative base effect from low energy prices and VAT cut. 

The odds, therefore, appear stacked in favor of a convincing move above 1.20. The dollar may draw bids if the Sino-US tension flareup due to Washington's plan to establish a new bilateral economic dialogue with Taiwan. Beijing may object to that move as it considers Taiwan as its territory. 

On the data front, the focus will be on the German labor market data and speech by the European Central Bank's De Guindos. 

Technical levels