Returning from a long weekend, US stock market participants seem to have decided to lock in profits, deeming the recent rise to record highs excessive.

Meanwhile, US Treasury yields are rising by leaps and bounds.

Investors are waiting for the next $1.9 trillion package of assistance to the US economy, proposed by US President Joe Biden, to be adopted soon.

Large-scale fiscal stimulus means an increase in the chances of accelerating economic growth and inflation in the country.

Expectations of an increase in US debt issuance triggered a sell-off in treasuries, which led to an increase in the yield on ten-year government bonds, which has already reached a level close to the pre-pandemic level, rising above 1.30%. This, in turn, made the dollar more attractive in the eyes of investors.

The USD index declined by 0.3% the day before, but then it moved to growth.

After reaching the local low around 90.1 points on Tuesday, the greenback recovered to 90.5 points.

Meanwhile, the euro ended Tuesday's trading lower against the US dollar, despite the fact that the eurozone macroeconomic reports that were released had exceeded analysts' expectations.

In particular, the currency bloc's GDP indicator for the fourth quarter was revised upward.

However, strong data on the New York Fed's manufacturing index and the dollar's reversal led to a fall in the main currency pair to the 1.2100 level. It continued to decline on Wednesday.

"A net break of EUR/USD below 1.2081 indicated the presence of a minor peak. The next support will come into play at 1.2019, and the more important one at 1.1945-1.1952. This is where the bears should be. Otherwise, the pair expects a more serious drawdown and test of 1.1800, and possibly 1.1695," said strategists at Credit Suisse.

"The nearest resistance is located at 1.2098. Downside risks will persist as long as the 1.2125-1.2128 area remains unbroken. Above it, the 55-day moving average around 1.2152 will come into play, and a break above 1.2190 will confirm the resumption of the underlying bullish trend," they added.

The main factor of pressure on the pair is still the strengthening of the US dollar across the entire spectrum of the market.

The USD index reached almost 1.5-week highs in the area of 91 points.

The positive dynamics of the greenback is due to the fact that the yield of 10-year US government bonds is confidently stayed in the area of annual highs.

In addition, the January reports on retail sales and industrial production in the United States were unexpectedly strong, significantly exceeding forecasts.

It is possible that the strengthening of the dollar will continue until the Biden administration's stimulus package takes effect, possibly in March, after which investors will begin to wind down their long positions on the USD.

However, in the near future, the US currency will have to pass a test of strength.

"The sharp jump in treasury yields means that Federal Reserve Chairman Jerome Powell's semi-annual speech to Congress on February 23 takes on special significance. We expect a clear signal from Powell that it is too early to talk about a change in the monetary rate. This will confirm the central bank's commitment to a soft monetary policy, " MUFG Bank specialists said.

The dollar risks losing its support in this scenario, and the euro will be able to recover after the fall.