The US dollar and the euro are mixed at the beginning of this week, with the dollar taking the chance to move upwards. On the other hand, the euro still has upside potential.

Market players still believe the European currency has room for maneuver and expect it to rise in 2022. Last week, EUR found support in strong EU data releases. According to preliminary reports by Eurostat, in December, annual inflation increased from 4.9% to 5%. The inflation rate is likely to remain above the target level of 2% this year, but would likely decrease in 2023. Rising inflation largely reflects a sharp increase in fuel, natural gas and energy prices, ECB president Christine Lagarde said.

An outlook by ING states the euro could weaken if prices in the eurozone begin to fall earlier than in the US. The market still sees upside potential in the euro, though it remains unclear if the European currency would rise later. In the meantime, the US dollar is on the rise, fuelled by an expected interest rate increase by the Federal Reserve. Market players expect the Fed to hike the rates faster than other banks.

On Friday, January 7, USD notably went down on disappointing non-farm payrolls data. In December, only 199,000 new jobs were created in the US economy. Economists expected an increase of 400,000-422,000. Unemployment and average earnings data was more positive. In December, the unemployment rate in the US fell from 4.2% to 3.9%. The amount of employed people increased by 651,000, while the amount of unemployed declined by 483,000.

Last Friday's non-farm payroll report shows the state of the US economy before the rapid spread of the Omicron strain. More jobs would likely be created in 2022 despite the impact of COVID-19, economists predict.

The current situation is positive for the US dollar, with many traders backing it. Market players await Wednesday's US inflation data, which could give support to an interest rate increase alongside recent Fed actions. The inflation rate is forecasted to increase by 0.4% month-over-month and 7.1% year-over-year. On Friday, January 14, retail sales and industrial production data will be released - an increase of 0.3% month-over-month is expected.

Early on Monday, EUR/USD traded at 1.1330. Bearish traders predominated, with their targets being 1.1285 and 1.1235. If the pair breaks through the resistance level at 1.1364, which is seen as weak, it could lead to a bullish scenario, opening the way for 1.1442 and 1.1512.

Despite a short-term slump of USD, market players have increased the amount of open long positions over the past 3 weeks, pushing the total amount of long positions to a 27-month high. Major funds significantly increased their purchases of USD, propelling the American currency upwards against the euro. Rising demand would boost the US dollar further.