The equation of a circle with center \( (h, k) \) and radius \( r \) is given by:
\[
(x - h)^2 + (y - k)^2 = r^2
\]
Given the center \( (h, k) = (1, 2) \), we know the circle touches the X-axis. The radius is equal to the y-coordinate of the center, which is \( 2 \).
Substitute into the standard circle equation:
\[
(x - 1)^2 + (y - 2)^2 = 2^2
\]
Expanding and simplifying:
\[
(x^2 - 2x + 1) + (y^2 - 4y + 4) = 4
\]
\[
x^2 + y^2 - 2x - 4y + 5 = 4
\]
\[
x^2 + y^2 - 2x - 4y + 1 = 0
\]
Thus, the equation of the circle is \( x^2 + y^2 - 2x - 4y + 1 = 0 \).