Is the euro’s fall so dramatic?

EUR/USD has suffered losses during the last several days. There are several factors which affect the single currency.

Firstly, there’s political uncertainty in Germany. Social Democrats will vote this weekend on whether they want to form coalition with Angela Merkel. If they say “yes” to Merkel, the euro will find a support, if not, it will remain under pressure. Secondly, traders await Italian parliamentary election on March 4. There are risks because some parties want the country out of the European Union. Furthermore, European PMI data released this week was disappointing.

Another reason of the pair’s decline was the stronger US dollar. The minutes of the Federal Reserve made traders talk about more rate hikes.  The more the USD strengthens its positions, the more the euro falls.

However, the picture is not so dramatic as it may seem from the first sight. The region’s economy is expanding at the fastest pace in eight years and sentiment is optimistic.

Technically the general uptrend is still in place. The single currency is moving in range with a resistance at 1.2520 and a support at 1.22. Decline below 1.22 will bring the pair to 1.20, where there will be new buyers. The key event which will either push the euro to new highs or let to the break in the trend is the European central bank meeting on March 8. Until then, we expect the pair to stay around the mentioned levels.

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