22.02.202118:01 Forex Analysis & Reviews: Deal of the week: buying or selling euros?

The euro continues to trade in a positive zone on Monday, strengthening its lead over the dollar. Earlier, weak data on the number of applications for unemployment benefits in the United States helped the main Forex pair to consolidate around the 1.21 mark. Another weak report increased the likelihood of early support measures, which could lead to a long-term weakening of the dollar.

The euro benefited from statistics from the eurozone. Judging by the latest publications, the situation in the eurozone is not as hopeless as it might have seemed earlier, and confident industrial growth may become a leading indicator of a faster recovery of the European economy compared to other developed countries of the world. On Monday, another piece of strong data from the region added to the positive.

The business climate index in Germany rose to 92.4 points in February from 90.3 points in January. Meanwhile, the markets were counting on an increase in the indicator to only 90.5 points. Also, the index of the current economic situation in the largest economy of the Euroblock increased in the reporting month to 90.6 points, while the forecast assumed the indicator at 89 points. For the euro, this is a moderate, but still a positive factor.

In the coming days, traders will be watching Jerome Powell's speech to Congress, which is expected to reaffirm the Fed's commitment to an ultra-loose monetary policy. Powell may urge Congress to expedite the adoption of new economic aid. With such a scenario, the pressure on the dollar will increase, which will certainly be used by risk buyers, including the euro. Thus, the "bullish" dynamics of the euro will continue this week.

The euro is also supported by the fact that there is still no demand for dollars from banks. The three-month LIBOR rate on the interbank market in London is near a historic low, which is bad for the US dollar.

The "bullish" trend for the euro is strengthening, which suggests an increase in the EUR/USD pair in the area of 1.2173 and 1.2300. It should be noted that for such a scenario to develop, stability above the level of 1.2060 is required

Not all market strategists are following the euro's bullish scenario this week. RBC recommends selling the euro against the dollar with a target of 1.1900 and a stop at 1.2220. Rising Treasury yields and weakening stocks could push the US dollar up.

"In the short term, if higher yields cause further disruption to the upward trend in the stock market, expect the dollar to be the beneficiary of these changes," the strategists wrote.

The pound sterling holds above 1.40 on Monday. However, a slight correction is not ruled out further. This is because there is often a pullback in the market after a positive week. The Federal Reserve's five-fold reduction in the volume of operations on the treasury bond market on Monday does not add to optimism.

However, traders are likely to buy back drawdowns and prevent the pound from pulling back too far down against the dollar. Why? Because the balance sheet of the US Central Bank expanded by as much as $115 billion last week. The balance has renewed its all-time high, which is negative for the US dollar.