July 3 (Reuters) - As EUR/USD nears 1.2000, recent rhetoric from European Central Bank officials appears to suggest that there is a slight unease with the rapid gains that the euro has made. So far, the single currency is up almost 14% against the dollar but, more importantly, the nominal effective exchange rate trades at the 2018 and 2020 highs, which had previously led to rounds of FX jawboning to talk the currency down.

For the ECB, the nominal effective exchange rate trades will be of greater concern than EUR/USD specifically, given that the measure better reflects the strength of the euro. Therefore, the higher the index, the more both the competitiveness of EU firms and inflation will dampen, raising the risk of an inflation undershoot.

That said, ECB Vice President Luis De Guindos did highlight in a recent interview that, while a move to 1.2000 can be overlooked, anything above that level would complicate matters.

Elsewhere, the Financial Times reported that some officials feel the need for the central bank-is this ECB? to more strongly push back against the rise in the currency.

Consequently, this indicates a potential line in the sand for EUR/USD, at least in the short run. Note that on the technical front, 1.2000 also marks the 200-month moving average, which would likely prove to be a tough hurdle to jump over on its first test.
euro trade weighted index


EURUSD monthly chart

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)