Scotiabank argues that the ECB is running out of options to stem further strengthening in the euro currency

The firm says that the rise in EUR/USD since March last year has prompted "what resembles a campaign to implicitly cap the currency" but that won't be enough.

"We think that the ECB will soon run out of options to control the EUR, as 'currency guidance' lapses and the EUR continues to trade in line with the broader dollar tone while remaining relatively supported by the erosion of the USD's yield advantage."

As for monetary policy, while the ECB has pledged to keep rates low for a prolonged period, the firm says that the market "has little hope the bank will succeed in returning inflation to target so reinforcing its forward guidance is rather moot".

I'm definitely not going to argue against that last bit on inflation. As for the euro outlook, they're pretty much arguing that the market will eventually return back to focusing on the Fed put but timing matters in such a context I would say.

EUR/USD D1 02-02

Looking at the chart, the dollar has been holding rather resilient as of late to start the year and while there might be a strong case to be had for the Fed put to keep the greenback weaker overall in trading this year, it may not be the case for now.

EUR/USD is pushing against key support at 1.2059-64 currently this week and more positive risk tones haven't quite helped with pushing the pair higher.

One also has to account for the decline in EUR/GBP back towards 0.8800 with a threat of a further breakdown in the pair as it holds below key weekly moving averages @ 0.8838-42 - acting as a possible headwind for the euro.

Going back to EUR/USD though, buyers will have to put up a stern defense here or risk a quick drop towards 1.2000 and the 100-day moving average (red line) @ 1.1963.

Those will be the next key downside levels to watch in case of a further drop this week.