At the end of last week, the greenback sank to a 2.5-year low. However, it was able to end Friday's session with a sharp increase versus most of its main competitors.
Instead of falling, the US currency advanced amid weaker-than-expected data on the US labor market for November.
Last month, the US economy added only 245,000 new jobs, which was significantly lower than the 610,000 recorded in October and the preliminary estimate of 468,000.
However, the nonfarm payrolls report was not a complete disaster as it showed that the unemployment rate in the country dropped from 6.9% to 6.7%, and the average hourly wage increased from 0.1% to 0.3% on a monthly basis.
While economists are still voicing concerns about a surge in the number of new coronavirus cases in the United States, recent macroeconomic data have shown that the national economy is gradually recovering. Thus, investors switched their attention back to the US currency.
In addition, the US authorities are developing projects for the distribution of the coronavirus vaccine, and Congress is working on a new package of stimulus measures.
On Thursday, the Food and Drug Administration (FDA will meet to grant an emergency use authorization for the COVID-19 vaccine developed by Pfizer and BioNTech.
If US lawmakers agree on at least a $900 billion aid package, the US dollar is sure to gain ground. The fact is that the US Treasury will have to sharply increase the borrowing to attract an additional $300 billion over three months, which will lead to a shortage of dollar liquidity in the short term.
On Monday, the greenback was able to recover to 91.2 after reaching the lowest values since April 2018 last week.
Demand for the US dollar as a safe-haven asset was spurred by reports of new possible US sanctions against China. This time, they may be imposed on 14 high-ranking officials from China. Traders fear another escalation in relations between the world's two largest economies.
On Friday, the EUR/USD pair reached its highest levels in two and a half years, but failed to consolidate at this level and pulled back from the area of 1.2170-1.2175.
One of the reasons why investors have decided to lock in profits could be the expectation that the ECB may soften its monetary policy.
On Thursday, the regulator will announce its decision on monetary policy.
At the end of the next meeting, the ECB is expected to announce an increase in the volume of the pandemic emergency purchase program by €500 billion to €1.85 billion. At the same time, the program is likely to be extended for six months until the end of 2021.
Thus, the ECB will continue to print money. However, it is obvious that this is not the only way to help the European economy and fiscal measures are also necessary.
Although the EU agreed on a €1.8 trillion recovery plan, its adoption was blocked by Poland and Hungary.
At the two-day EU summit, which starts on December 10, EU members will make another attempt to solve this problem.
While some experts believe that the ECB may not add its firepower to encourage EU leaders to break the deadlock. The euro is now at the peak of two and a half years, and this is another problem for inflation and economic growth in the EU, which may push the ECB to take decisive action.
Although the EUR/USD pair has retreated from 32-month highs, its short-term bias remains bullish. Therefore, attempts at a downward correction below 1.2100 may be regarded by market participants as a good opportunity to open long deals and remain in the area of 1.2070. Further support is located at 1.2040 and 1.2000.
The nearest strong resistance is located at 1.2180 and then at 1.2200 and 1.2250. If the pair breaks through the last level, it may rise to 1,2300.
