08.02.202116:42 Forex Analysis & Reviews: US dollar pares Friday's losses

On Monday, the US dollar is trying to pare Friday's losses, but this upside momentum is rather weak. Moreover, the technical analysis suggests a possible correction. The US dollar index may resume its downtrend towards new lows.

The euro/dollar pair is making a slight pullback from Friday's marks amid the stronger US dollar. However, you should not be hasty in your conclusions. Traders should take a wait-and-see approach. If there are signs of the pair's possible retest of the 1.2050 mark upwards, it will be possible to count on the euro's continued growth.

However, buyer's retest of the above-mentioned mark may come to nothing. In this case, the American currency will resume its upward movement. There are some fundamental factors which may drive the price up. Some US officials opposed further distribution of money. More importantly, Janet Yellen supported them in her own way. The $1.9 trillion stimulus package would be enough to return to "full employment", Treasury Secretary Janet Yellen said.

However, Yellen cannot be called a supporter of a weak dollar, and the prospects for a further downward trend may be overestimated. At the very least, they may raise doubts. Speaking of the possibility of the stronger US dollar, the scenario which implies a medium-term rally seems to be most likely. As for Friday's decline, the momentum was strong enough that it would be a mistake to ignore it.

In addition to the US dollar's attempts to gain in value, there are other factors putting downward pressure on the single currency. After the appointment of Draghi as a new prime minister of the Italian interim government, the euro continued to fall. This is due to the fact that the problems of the currency bloc are more serious than the fate of the third largest economy.

Investors are aware of the serious impact on the euro of the pandemic in the Old World, which has lagged behind the United States and Britain in the vaccine race. The hopes for an economic recovery in these countries resulted in a sharp increase in yields. This, in turn, led to an inflow of funds in the pound sterling and US dollar.

Instead of waiting for the euro to rise, market players are cutting their long positions. Market sentiment is becoming bearish. Analysts at Aberdeen Standard Investments believe that the euro will still fall to 1.17. The only significant support, according to them, is currently "a rather tough position of the ECB".

It can be clearly seen that the euro has indeed lost the momentum that pushed the currency to its highest level since 2018 in January. Investment banks, including Deutsche Bank AG and Nomura, recommend preparing for further decline in the euro/dollar quotes.