Based on the early price action, the direction of the EUR/USD is likely to be determined by trader reaction to the 50% level at 1.2074.
The Euro is trading at a seven-week low against the U.S. Dollar on Tuesday as concern about extended lockdowns in the Euro Zone weighed on the single currency and optimism about U.S. stimulus boosted the dollar.

At 12:56 GMT, the EUR/USD is trading 1.2036, down 0.0024 or -0.20%.
Initial European Union estimates showed the Euro Zone economy contracted less than expected in the fourth quarter of 2020 amid pandemic-induced lockdowns. But it is heading for another, probably steeper decline in the first quarter of this year.

Those concerns were amplified after retail sales in Germany, Europe’s biggest economy, plunged by more than forecast in December, according to data on Monday.

“Things are looking even more depressing here,” Commerzbank strategists said in a daily note.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. The trend turned down on Tuesday when sellers took out the swing bottom at 1.2054. A move through the next swing bottom at 1.2025 will reaffirm the downtrend. A trade through 1.2190 will change the main trend to up.

The main range is 1.1800 to 1.2349. The EUR/USD is currently testing its retracement zone at 1.2074 to 1.2010. This zone is controlling the near-term direction of the Forex pair.
Daily Swing Chart Technical Forecast
Based on the early price action, the direction of the EUR/USD is likely to be determined by trader reaction to the 50% level at 1.2074.

Bearish Scenario
A sustained move under 1.2074 will indicate the presence of sellers. The first target is 1.2010. We could see a technical bounce on the first test of this level. But if it fails then don’t be surprised by an acceleration to the downside. The daily chart indicates there is plenty of room to the downside with the November 23 bottom at 1.1800 the next likely downside target.

Bullish Scenario
Recapturing 1.2074 will signal the return of buyers. This move is not likely to lead to a change in trend, but it could fuel a retracement of the sell-off from 1.2190. The first upside target would be around 1.2109.

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