EUR/USD: 1.2275 – a tough nut to crack ahead of German ZEW?

• Ignores weakness in T-yields.
• Will German ZEW push it through 1.2275?

The EUR/USD pair failed once again to chew the offers near 1.2275 region and reversed from there to now trade back in the red zone just ahead of the midpoint of the 1.22 handle.

The move lower is mainly driven by resurgent US dollar demand across the board, as the USD bulls regained footing after the US President Trump signed the funding bill to reopen the US government. The USD index bounces-off 90.08 lows and trades at 90.21, up +0.08% on the day.

Moreover, the upside in the spot remains capped, as markets turn cautious and refrain from placing any big bets on the EUR ahead of the ECB policy decision due this Thursday. Analysts at Lloyds bank believe, “it’s too early for any change to the ECB's communication on future policy, especially given the euro's recent rise and with domestic inflation remaining subdued.”

Meanwhile, the focus also remains on the US-German yield spread, in the wake of the German political developments and ECB-Fed monetary policy outlooks. Ahead of the ECB decision, the major will receive fresh impetus from the German ZEW economic sentiment due later on Tuesday.

EUR/USD Technical Levels

FXStreet’s Chief Analyst, Valeria Bednarik, notes: “The pair remained confined to a tight range, but held most of the day above Friday's close, and still technically neutral according to readings in the 4 hours chart, as it keeps swinging back and forth around a horizontal 20 SMA, whilst technical indicators eased, now heading south around their mid-lines with limited directional strength. The pair has an immediate support at 1.2200, and a stronger one at 1.2164, the low set last week, with a break below this last favoring a steeper decline for this Tuesday.”