- EUR/USD gaining resilience as GBP/EUR's rally builds.

- Storing up potential for second & third quarter recovery.

- But 1.2000-to-1.2200 range set to hold in week ahead.

- Ifo, ECB speech and Fed's Powell in focus this week.

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EUR/USD spot rate at time of writing: 1.2122Bank transfer rate (indicative guide): 1.1697-1.1782FX specialist providers (indicative guide): 1.1939-1.2036More information on FX specialist rates hereThe Euro-to-Dollar rate was unchanged for the week on Friday but has been gaining resilience and cementing its grip on the 1.20 level as a rally in Sterling reduces upward pressure on the trade-weighted exchange rate, although it's likely to remain confined by a 1.20-to-1.22 range over the coming days.

Europe's single currency is in recuperation mode after a January wobble saw it nearly unravelling beneath 1.20, although it held above there last week despite widespread weakness in global stock and commodity markets early on.

Monday and Tuesday declines petered out around 1.2020 and left in their wake a more resilient picture on the charts following a more-than 1% increase in the Pound-to-Euro rate, which is deflating the trade-weighted Euro and helping EUR/USD avoid a further pullback.

"The intraday Elliott wave counts are more positive and provided we remain underpinned by support offered by the 1.2015, the September high and the support line at 1.2005, an upside bias should persist," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank. "On the topside, the market is capped by the 1.2190 22nd January high. The 1.2190 level is likely to act as the barrier to the 1.2556 2018 high and 1.2623, the 200 month moving average."

A 10% EUR/USD rally in the year to mid-January was enough to get the European Central Bank (ECB) fearing it would be less likely to meet a long-elusive inflation target over the next two years, given that stronger exchange rates can reduce consumer prices by making imported goods cheaper.

Above: Euro-to-Dollar rate shown at daily intervals alongside GBP/EUR (red line).

"Policymakers have recently spoken to media (privately and publicly) in what resembles a campaign to implicitly cap the currency," says Juan Manuel Herrera, a strategist at Scotiabank. "EUR may remain subdued, or lag its peers, for a bit longer as the bloc lags the UK and US in its pace of vaccinations."

Euro-Dollar has been on its back foot since President Christine Lagarde said on January 13 the ECB is "extremely attentive" to it, while other policymakers were quoted by various media suggesting the bank could soon take action to limit its rise. The ECB's concerns have been made more poignant by the slow pace of the vaccination rollout in Europe, which threatens to leave the continent's economy months behind others in any 2021 recovery.

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EUR/USD Forecasts Q2 2023 Period: Q2 2023 Onwards Details: Consensus institutional forecast targets + max & min targets. Contributors: Citi, Barclays, Morgan Stanley & more Provider: Global Reach Partners Type: Free Download Please Access Here

{wbamp-hide end}{wbamp-show start}{wbamp-show end}"EUR/USD survived some dollar strength and could enjoy some strength on Monday were the German February Ifo number to surprise on the upside," says Petr Krpata, chief EMEA strategist at ING. "This year’s consolidation in EUR/USD seems to have calmed the ECB down a little – the euro did not feature prominently in the January ECB minutes. And assuming commodities stay bid across the board, and GBP stays supported too, we think the pro-cyclical EUR could manage to inch higher."

EUR/USD has as much as a 20% share of the trade-weighted Eurozone exchange rate (TWI) and so its double-digit percentage rally last year was a crucial influence on the TWI's increase to near-decade highs. But a rally in the Pound, which is 15% of the trade-weighted Euro, has already eased these pressures and if it continues could create headroom in the TWI such that EUR/USD is then able to rally again in the second and third quarters.

Above: Euro-to-Dollar rate shown at daily intervals alongside U.S. Dollar Index (blue line).

The impact that a rallying EUR/USD has on the TWI could be offset by an increase in Sterling where an eight percent GBP/EUR rise from January's 1.11 starting point to 1.20 this March would create more than 1% worth of TWI headroom. This would enable EUR/USD to climb some five percent from current levels further down the line, without any overall lift in the trade-weighted exchange rate or aggravation for the ECB.

That would see Euro-Dollar rise to 1.27, in line with forecasts from ING, which tips the second quarter as a likely gamechanger for the Eurozone economy and currency. In the interim however, the Euro's scope to rise could be limited, with 1.22 acting as resistance while the day-to-day trajectory of the exchange rate depends as much as anything else on investors' reading of the economic tea leaves as well as appetite for risk assets like stocks and commodities.

"The positive correlation between global equity market performance and EUR/USD has broken. The rolling 30- day correlation between daily % changes in EUR/USD and the S&P500 has fallen to close to 0.0 after averaging closer to +0.3 between May and December of last year," says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG. "The developments suggest that the EUR could continue to underperform in the near term alongside other low yielding currencies, but there is upside potential for the EUR if relative pessimism over the euro area growth outlook proves overdone."

With price action in the Pound ad risk markets aside, the highlights of the week ahead will be Monday's Ifo Business Climate index followed by Tuesday and Wednesday appearances in Congress by Federal Reserve (Fed) Chairman Jerome Powell. The currency market will look for continued assurances from Powell at 15:00 on each day respectively that the bank intends to keep its interest rate and short-term American bond yields pinned to the floor at least until 2023. The Ifo survey is out at 09:00 Monday.

Above: Euro-Dollar rate at weekly intervals alongside GBP/EUR (red), GBP/USD (green) and S&P 500 futures (purple).