EUR/USD Analysis: Bulls trying hard to defend 1.2060-50 support zone

A combination of factors prompted some fresh selling around the EUR/USD pair and dragged it to over two-week lows on the first day of a new trading week. Uncertainty over the rollout of COVID-19 vaccine in Europe was seen as one of the key factors that continued weighing on the shared currency. The intraday selling picked up pace following a record slump in German retail sales, which indicated that coronavirus-induced lockdowns choked consumer spending in the block's biggest economy. Meanwhile, an upward revision of the Eurozone Manufacturing PMIs did little to impress bulls or lend any support to the major.

The pair was further pressured by a broad-based US dollar strength. The greenback was back in demand amid doubts about the timing and size of the US President Joe Biden’s proposed COVID-19 relief package. A group of Republican senators urged Biden to cut the massive $1.9 trillion price tag of the economic stimulus measures to garner bipartisan support and visited the White House to discuss a $618 billion alternative plan. That said, a solid rebound in the equity markets kept a lid on any runaway rally for the safe-haven USD.

Apart from this, the disappointing release of the US ISM Manufacturing PMI further collaborated towards capping gains for the greenback. This, in turn, assisted the pair to defend the 1.2060-50 support zone and regain some positive traction during the Asian session on Tuesday. Market participants now look forward to the release of prelim Eurozone Q4 GDP report for a fresh impetus. The region's economy is anticipated to have contracted by 2.1% during the October-December period as against the 15.9% growth recorded in the previous quarter.

Short-term technical outlook

From a technical perspective, a sustained break below the 1.2060-50 important support will shift the near-term bias in favour of bearish traders. The pair might then accelerate the slide further towards the key 1.2000 psychological mark. This is closely followed by support near the 1.1980-75 region, which if broken decisively will set the stage for an extension of the ongoing corrective fall from near three-year tops touched in January.

On the flip side, momentum back above the 1.2100 mark might now confront immediate resistance near the 1.2135-40 region. Some follow-through buying has the potential to push the pair further towards the 1.2190-1.2200 supply zone en-route the 1.2240 hurdle. The momentum could further get extended and assist bulls to aim back to reclaim the 1.2300 round-figure mark.