EUR/USD recovers above 1.13 as greenback continues to weaken

• EUR/USD stages a technical correction on Tuesday.
• US Dollar Index retreats below 97.
• ECB's Weidmann says economic weakness 'a bit more protracted' than initially thought.

The EUR/USD pair is staging a modest rebound on Tuesday and is looking to snap its 7-day losing streak. Following a drop to its lowest level since mid-November at 1.1257, the pair took advantage of the broad USD weakness and changed its direction. With the recovery gaining momentum in the second half of the day, the pair rose above 1.13 and was last seen trading at 1.1310, adding 0.33% on a daily basis.

Earlier in the day, Jens Weidmann, President of the Deutsche Bundesbank and ECB board member, in a speech at the University of South Africa argued that the economic weakness in the euro area was 'a bit more protracted' than initially thought. Meanwhile, Governing Council member Nowotny reiterated that the ECB would look at the decision about the rates in the summer. Investors will be paying close attention to tomorrow's industrial production data from the euro area, which is expected to show a 0.4% contraction on a monthly basis in December.

On the other hand, the lack of macroeconomic data releases from the United States on Tuesday made it difficult for the greenback to preserve its strength and the US Dollar Index dropped below the 97 mark. At the moment, the DXY is losing 0.25% on the day at 96.83. Meanwhile, FOMC Chairman Powell recently said that the probability of a recession was not elevated and reiterated that the national-level data was pointing out that the economy was good. Nevertheless, none of these remarks helped the dollar regain its strength.

Technical outlook by FXStreet Chief Analyst Valeria Bednarik

The EUR/USD pair trades close to 1.1300, and the 4 hours chart shows that the risk remains skewed to the downside, as the 20 SMA maintains a strong downward slope well above the current level, offering a short-term static resistance at around 1.1320. Technical indicators in the mentioned chart have recovered from their lows, maintaining upward slopes but well into negative ground, suggesting that the corrective movement may continue, yet at the same time that bears are still in control of the pair.

Support levels: 1.1260 1.1215 1.1180

Resistance levels: 1.1330 1.1355 1.1400