Is euro headed for 1.20?

EUR/USD is in positive territory for a third straight day. Currently, EUR/USD is trading at 1.1957, up 0.07% on the day.

The euro has quietly but steadily moved within striking distance of the 1.20 line, which has psychological significance. EUR/USD has climbed almost 2 percent in the month of April. With US yields on the retreat, the US dollar has lost its momentum which saw it record broad gains in the first quarter.

One key factor which could limit the upside for the euro is the disorganized vaccine rollout in the EU. A huge shortage of Covid vaccines, exacerbated by the controversy over the AstraZeneca shots, has weighed on eurozone growth. On Wednesday, Denmark became the first EU member to ban AstraZeneca vaccines; Germany, France and other EU countries have placed restrictions on the use of these shots.

Weak economic conditions in the eurozone are being reflected in key indicators. Eurozone Industrial Production declined by 1.0% in February, its second decline in the past three months. In Germany, the bloc’s largest economy, the well-respected ZEW Economic Sentiment index disappointed in April, falling to 70.6. This was down sharply from 76.6, and well off the consensus of 79.9. This was the first decrease since November 2020. The drop is being attributed to concerns that consumer spending will decline due to tighter lockdown restrictions.

Inflation, an important gauge of economic activity, remains below the ECB target of around 2 per cent. Still, inflation is moving upwards, as eurozone CPI rose to 1.3% in March, the first time in 12 months that it was above the 1% level. The ECB has estimated that inflation will reach 1.5% in 2021. Taking a page out of the Fed playbook, ECB President Christine Lagarde has said that she expects any inflation volatility to be temporary.

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EUR/USD Technical

• EUR tested resistance at 1.1973 in the Asian session. Above, there is resistance at 1.2044
• On the downside, there is support at 1.1784, followed by a support line at 1.1666

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