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EURUSD: a drop to 1.1952 could be in the cards

The EURUSD pair logged losses on Tuesday, February 16, although the first half of the day saw smooth trading for the European currency. The price action started out near 1.2125. Preliminary Q4 Eurozone GDP came out at 10:00 GMT. Although negative, the reading turned out slightly better than expected. In annual terms, the EU economy contracted by 5.0% (vs. -5.1% expected), while in quarterly terms it lost 0.6% (compared to a projected -0.7%). This data point gave impetus to the European currency, which rallied to 1.2169, a new high since January 27.

However, the market was later shocked by a speech from President of the St. Louis Federal Reserve, James Bullard. In an interview with CNBC, Bullard said that inflation in the US is on track to rise this year, and the Fed will have to reckon with this issue. The markets read this as a signal for future tightening of the Fed's policy. The dollar immediately spiked higher against all major currencies, while gold, silver and US stocks retreated. EURUSD fell to 1.2095 and ended the day slightly higher, near 1.2105.

On Wednesday, February 17, the key pair has extended losses, breaking through the support level at 1.2081, and retracing a low last seen on February 9. If the current trend persists, the scenario of a decline to 1.1952 might be in the cards.

US retail sales for January will be released at 16:30 today. Experts expect 1.0% MoM growth after a 0.7% MoM decline in December. At 19:00 GMT the minutes from the Fed’s recent meeting will be published.

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