01.02.202123:27 Forex Analysis & Reviews: EUR/USD: dollar on the march, while the market figures out what will happen with the greenback

The USD index stabilized in January. The greenback has predominantly been sideways in recent weeks after rebounding from a nearly three-year low (around 89.2 points) earlier in the year. Traders are now trying to figure out if the sell-off of the US currency will continue, which took place in 2020 and was caused by expectations of a global economic recovery after the pandemic, amid huge budget spending in the United States and the continued super-soft monetary policy of the Fed.

The USD index stabilized in January. In recent weeks, the greenback has mostly traded in a sideways range after rebounding from an almost three-year low (around 89.2 points) at the beginning of the year.

Traders are now trying to understand whether the dollar's sell-off will continue, which took place in 2020 and was caused by expectations of economic recovery after the pandemic amid a huge budget expenditures in the United States and continued ultra-loose monetary policy of the Federal Reserve.

"The USD downtrend is currently suspended, but what will happen to the dollar in the future, from one week to a month, probably depends on the risk appetite of investors," National Australia Bank strategists say.

Last week, the greenback strengthened by about 0.5% on the back of a sharp decline in key US stock indexes, provoked by the excitement around GameStop. At the same time, the Dow Jones and S&P 500 indicators suffered the highest losses in a month since October.

Although on Monday, the Dow Jones futures returned to the area above 30,000 points, and the S&P 500 - above 3,700 points, nonetheless, both indexes remain under the 50-day moving average, which is fraught with risks of breaking the short-term upward trend of recent months.

"We need to see where the stock stabilizes, and whether it will be a short-term surge in the stock market or it will cause a further downturn," Barclays said.

The greenback started the new week on a high note, updating local peaks near 90.9 points.

The positive trend in the USD is supported by investor concerns about the adoption of another fiscal stimulus package in the United States and the potential impact of the slow pace of vaccination against COVID-19 on global growth prospects.

A group of Republican senators invited US President Joe Biden, who previously presented a $1.9 trillion stimulus program, to discuss an alternative package of measures to support the national economy in the amount of $600 billion.

Biden has invited senators to the White House for a full exchange of views on the stimulus program, the White House press office said Sunday.

The euro was fairly steady against the US dollar, even amid a sell-off in US stocks.

The single currency was supported by the fact that Germany and Spain managed to avoid an economic downturn in the fourth quarter, while the French economy did not slow down as much as analysts expected.

The EUR/USD pair closed Friday's trading with a slight increase, around 1.2135.

The euro started the new week on the defensive against the US dollar following two sessions of growth.

The EUR/USD pair sank to local lows around 1.2070 on Monday.

The euro was under pressure after the release of disappointing statistics for Germany, where retail sales in December fell by 9.6% on a monthly basis, although previously expected a decline of only 2.6%.

Despite the current downturn, the EUR/USD pair continues to trade within the range that has been prevalent since mid-January.

The evolution of the pandemic, vaccination against COVID-19 and the upcoming debate on the US stimulus package, due to end later this week, act as the main short-term drivers for the EUR/USD pair.

"The main currency pair should close below 1.2050 to make us expect a steady decline. The chances of such a scenario will increase if the pair does not advance above 1.2180 in the next few days. The next strong support for EUR/USD is located at 1.2000 ", - noted the experts of UOB.