- EUR/USD trades flat above 1.21, after Monday's 0.13% drop.
- Analysts foresee a pullback ahead of Thursday's ECB rate decision.
- German data due at 10:00 GMT is expected to provide mixed signals on the economy.
EUR/USD is consolidating below the 100-hour Simple Moving Average (SMA) at 1.2120 for the eighth straight hour, with the bulls waiting on the sidelines amid calls for a pullback ahead of Thursday's European Central Bank (ECB) monetary policy decision.
"While stronger than expected German data keep EUR/USD near 2.5-year highs, we are still looking for profit-taking ahead of the monetary policy announcement," BK Asset Management's Kathy Lien noted.
The central bank is expected to ramp up its asset purchase program and attempt to talk down the euro by focusing on low inflation. EUR/USD has risen over 3% since November, despite the Eurozone facing the second wave of coronavirus. As such, traders may reduce long exposure while heading into the ECB event.
The currency pair has already pulled back from 1.2178 to levels below the 100-hour SMA. The decline could pick up the pace if the German and Eurozone data due today prints below estimates.
The German Zew Survey – Economic Sentiment, which measures the institutional investor sentiment, reflecting the difference between the share of optimistic investors and the share of pessimistic analysts, is seen rising to 46 index points in December from November's 39. However, the Current Situation index is deteriorating to -66 from -64.3.
The focus would also be on the Eurozone Zew Survey – Economic Sentiment for December and third quarter Gross Domestic Product and Employment Change data.
And lastly, news flow related to Thursday's European Union (EU) summit could influence the common currency's demand. According to Reuters, a senior EU diplomat has said that the EU would bypass Hungary and Poland to set up the budget and recovery fund if the two nations do not drop their veto by Thursday.
Technical levels
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