12.02.201810:01 Forex Analysis & Reviews: The difficult situation of the euro and the US dollar

The European currency recovered a number of its positions paired with the U.S. dollar, after another attempt by the bears to break a large support in the area of 1.2215, which was unsuccessful last Friday.

The U.S. economic data, which came out in the Friday afternoon of February 9, did not support the greenback.

According to the report of the US Department of Commerce, inventories in the U.S. wholesale trade increased by 0.4% in December 2017 compared with the previous month, after rising by 0.6% in November. Economists forecast an increase of 0.2% on inventories for December. Sales in wholesale trade grew by 1.2% in December compared to the previous month.

It is likely that the European currency received some support after German Chancellor Angela Merkel announced this weekend that the conservative bloc headed by her will continue to formulate a budgetary policy at the European level. Merkel also expects that Germany's budget will continue to be balanced, which will allow adherence to the previous policy.

The problem is that her party will no longer be controlled by the Ministry of Finance. Now the Social Democratic Party will be managed by the Ministry of Foreign Affairs, Justice and Finance. Despite this, Merkel is confident that the Minister of Finance will not do everything he wants, and the decisions will be taken in concert.

As for the current technical picture of the EUR/USD pair, volatility in the financial markets will remain quite high in the short term. On the one hand, a major drop in the U.S. stock markets forced investors to transfer their assets to bonds and the U.S. dollar, since a softer fiscal policy and rising risks to inflation in the US can cause an acceleration in monetary tightening of the Fed. On the other hand, the fall of the euro will be limited by the actions of the European Central Bank, which this year plans to curtail the program of bond redemption.

The growth of the European currency against the US dollar was restrained by the resistance level at 1.2300, which was formed at the end of last week. Only its breakthrough will lead to a larger upward movement in the trading instrument with the renewal of resistance 1.2340 and 1.2390, hereinafter, the market will again be dominated by large sellers. The continued pressure on the euro earlier this week could lead to a larger drop with a breakout on the support level of 1.2250 and 1.2210, which will allow the bears to reach the new monthly lows of 1.2170 and 1.2130.