EUR/USD to bounce at the critical 1.2055 support

EUR/USD has dropped sharply as rising US yields boosted the dollar. Notwithstanding, the pair is set to bounce at the critical 1.2055 support, according to FXStreet’s Analyst Yohay Elam.

Key quotes

“President Joe Biden is working hard to promote his $1.9 trillion covid relief bill which may be approved as early as next week. While markets want more money, considerable fiscal stimulus means higher chances that the economy overheats and the prices rise.”

“The assumption of higher inflation assumes the economy is running hot – but Retail Sales figures for January may provide a reality check. Economists expect a rebound in early 2021 after two disappointing falls over the holiday’s but that may not necessarily be the case.”

“Perhaps the more significant event awaiting investors on Wednesday is the Federal Reserve's meeting minutes. The world's most powerful central bank will likely continue disregarding fears of inflation. The bank is likely to reiterate its commitment to low rates and its bond-buying scheme, which means keeping yields – and the US dollar – in check.”

“Euro/dollar has dropped below the 50 and 100 Simple Moving Averages and momentum has turned to the downside. These bearish signs may push it to the critical support at 1.2055, which separated ranges in early February. At that point, the Relative Strength Index may dip below 30, entering oversold conditions.” 

“Some resistance awaits at 1.2110, which provided support last week, followed by 1.2150, a swing high from the same time. Below 1.2055, the next cushion awaits at 1.20, the round number, and the next level to watch is 1.1955.”