The EUR/USD pair once again managed to catch some bids ahead of the 1.2200 handle and has now rebounded around 40-pips from session lows.
The pair opened with a modest bullish gap at the start of a new week and was being supported by some positive development over ending a political deadlock in Germany. However, the prospect of another German election in February was still not ruled out and eventually capped any additional gains.
Meanwhile, a modest US Dollar rebound, following the initial weakness led by a partial shutdown of the US government, dragged the pair to an intraday low level of 1.2214. The dip was quickly bought into amid some fresh USD selling bias since the early European session and was further supported by the usual positive tone on the German economy from Bundesbank's monthly report.
Despite good two-way moves, the pair seemed lacking any firm directional bias and the price action now seems to suggest traders' indecision ahead of the next big event risk - ECB monetary policy decision on Thursday. This along with important US macro data would help determine the next leg of directional move.
Technical levels to watch
Momentum beyond 1.2280 level might continue to confront some fresh supply near the 1.2300 handle above which the pair is likely to dart back towards 3-year highs resistance near the 1.2325 region.
On the flip side, weakness back below 1.2235 level might continue to find an immediate support near the 1.2215-10 region, which if broken could accelerate the fall back towards 1.2185-80 support area.
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