EUR/USD regains some composure and tests 1.1230

• EUR/USD moves higher and approaches 1.1230.
• The dollar stays side-lined near recent tops.
• Inactivity in the US markets are likely to keep markets flat.

The single currency manages to regain the smile somewhat and lifts EUR/USD to the daily peaks around 1.1230 on Thursday.

EUR/USD bottomed out near 1.1180 on Wednesday

EUR/USD picks up some upside traction although the sentiment surrounding the pair stays largely tilted towards the bearish side and the door remains wide open for the continuation of the downtrend for the time being.

In the meantime, the pair is on the way to close the third consecutive week with losses, trading in levels last seen in June 2020, and always on the back of the unabated rally in the greenback.

The latter remains propped up by rising speculations of a Fed’s lift-off sooner than anticipated. Indeed, this view was supported further by the release of the FOMC Minutes on Wednesday, where the majority of members signalled that the Fed might need to trim its bond-purchase programme at a faster pace.

In the calendar, the German Gfk Consumer Confidence deteriorated to -1.6 in December, while the final Q3 GDP came in at 2.5% YoY. Later in the session, the ECB will release its Accounts of the latest meeting and Chairwoman Lagarde is due to speak.

What to look for around EUR

EUR/USD seems to have found some contention in the 1.1190/85, or fresh cycle lows, so far this week. The pair continues to suffer the ECB-Fed policy divergence, while the sharp increase in COVID-19 cases in Europe also adds to the deteriorated outlook for the single currency in the last part of the year. Also weighing on the pair, the loss of momentum in the economic recovery in the euro area - as per some weakness observed in key fundamentals – is also seen pouring cold water over investors’ optimism on the economic recovery.

Key events in the euro area this week: German GfK Consumer Confidence, German Final Q3 GDP, ECB Accounts, ECB’s Lagarde (Thursday) – ECB’s Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Increasing likelihood that elevated inflation could last longer. Pick-up in the political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary on the rule of law. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.22% at 1.1222 and faces the next up barrier at 1.1300 (10-day SMA) followed by 1.1374 (high November 18) and finally 1.1429 (20-day SMA). On the other hand, a break below 1.1186 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).