• DXY extends recovery into Asia.
  • Holds above the 1.2000 support.
  • Awaits Euro area final services PMIs and US data.

The EUR/USD pair consolidated its post-FOMC minutes-led slide just ahead of 1.20 handle almost through the Asian session, with the risks tilted to the downside ahead of the Euro zone and US macro releases.

EUR/USD: Monetary policy divergence back in play?

The spot continues to find buyers at 1.2000 levels, despite higher Treasury yields that boost the demand for the US dollar versus its main competitors. However, the bounce appears limited, as the monetary policy divergence between both continents is back in play, especially after yesterday’s Dec FOMC meeting minutes was read more hawkish than anticipated while markets await the ECB minutes due next week for fresh insights on the policy outlook this year.

Meanwhile, markets believe that the major could extend the downward correction below a break of the 1.2000 mark, as the year-end rebalancing of positions in the US dollar could be over. Hence, the pair could continue to overlook the macro news, just as yesterday’s upbeat German labour market report had little impact on the EUR. The German employment data showed that the country’s unemployment rate dropped to a record low while the unemployment change for Dec came in at -29k vs. -13k expected and -20k previous.

Valeria Bednarik, Chief Analyst at FXStreet, wrote, “attention now shifts toward US employment data as the country will release its usually weekly unemployment claims this Thursday, alongside with the ADP private employment survey, ahead of Friday's Nonfarm Payroll report. Also, the final Markit services and composite PMIs for the EU and the US will be out this Thursday.”

EUR/USD Technical Levels

The Research Analysts at Scotiabank, explain: “The EUR has slipped back from September's peak levels and perhaps risks consolidating a little more in the near term; the market range so far today is inside yesterday's which supports the notion of consolidation. While spot perhaps risks dipping a little more than we expected Tuesday, we think the "internals" of the EUR rally remain strong from a technical point of view. However, that may mean support nearer 1.1940/50 near-term than the 1.20 area we suggested yesterday. Resistance remains 1.2090/1.21.”

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