EUR/USD: Off multi-month highs, holds above 1.1200 ahead of ECB

Amid a broad-based US dollar rebound, EUR/USD corrects further from three-month highs of 1.1257 ahead of the European open, as the bulls take a breather ahead of the key European Central Bank (ECB) monetary policy decision.

The market mood turned cautious in Asia and re-ignited the haven demand for the US dollar, as the US-China tensions continue to dampen the investors’ sentiment. The US dollar index jumps 0.20% to flirt with daily highs of 97.47, having hit a three-month low at 97.19.

Despite the latest downtick, the main currency pair holds above the 1.1200 barrier, underpinned by the cross-driven strength, Germany’s stimulus agreement and expectations that the ECB additional stimulus will likely ramp up the economic recovery.

The overnight drop in the pound, in the wake of the doubts of a likely extension to the Brexit transition and the resultant EU-UK trade deal, drove the EUR/GBP cross nearly 0.20% higher.

Meanwhile, the ECB is widely expected to add about EUR500 billion to its Pandemic Emergency Purchase Programme (PEPP), in another effort to support the coronavirus-stricken economy. Late Wednesday, the German coalition parties agreed a 130 bln euro stimulus package

However, further correction in the major cannot be ruled out on the ECB announcement, as the extra stimulus is already priced-in by the markets. Meanwhile, upbeat US jobs data could bolster the US dollar bounce and could likely collaborate with EUR/USD’s move lower.

EUR/USD technical levels to watch

The immediate resistance awaits at 1.1257 (three-month highs), above which 1.1300 remains on sight. On the flip side, the supports are aligned at 1.1171 (5-DMA) and 1.1128 (daily classic S2).

EUR/USD additional levels