Forex is a mess. The movement of key currency pairs is absolutely illogical, so it is problematic to build a forecast, including from the point of view of technical analysis. Yesterday, good statistics from the eurozone should have pushed the EUR/USD exchange rate to stronger levels, but this did not happen, the euro did not receive support. On the contrary, the price went down due to the rising dollar, which drew attention to the publication of data from the United States, which also turned out very different from the forecast estimates. Today, the focus of traders is retail sales. Taking into account yesterday's incident, it is almost impossible to predict the market reaction.

There is a change in the trend on the dollar index on Wednesday. In theory, the release of strong data should spur the dollar rally, but not a fact. Today, traders will also pay attention to the publication of the FOMC protocols, which should bring moderate positive emotions to greenback buyers. However, the retail indicator is more important, it will stand out from the general background, and the protocols may go unnoticed. The reaction will follow if there is a hint from the Fed that it is ready to pursue a softer policy. The catalyst for sales may be weak retail. In this case, the dollar index will again go below 90.50

The growth of Treasury yields is on the side of the dollar. The 10-year yield, for example, rose more than 10 basis points, coming close to the 1.30% level. Such marks were achieved for the first time since February 27, 2020.

If you look at the general background, it still plays on the opposite side of the dollar and is much more suitable for buying risky assets. It is expected that in the first 100 days of the presidential term, the target of 100 million vaccines is expected to be exceeded. At the same time, the pandemic is on the decline, supporting market sentiment about a faster recovery of the US economy.

Market players are looking forward to the imminent approval of Joe Biden's proposed stimulus package. The special position of the Democrats in the parliament allows the president to ignore the opposition from the Republicans, at least for a while. Against this background, investors' confidence that the package of measures will be approved by the end of February or early March is strengthened.

Another fact worth noting is that when the stimulus-fueled boom ends, the US economy will be left with an increased current account and budget deficit. For the dollar, this is a negative. Additional pressure will be exerted by rising inflation expectations in the US, while the Federal Reserve does not plan to tighten policy.

Yesterday's dollar rebound put pressure on the euro. The EUR/USD pair is approaching the critical level of 1.2050, from where the recovery began earlier. If this mark does not stand at the end of Wednesday's session, then the main pair will most likely go to the lows of February

Meanwhile, ING calls the euro undervalued against the dollar and expects that everything will fall into place soon.

According to analysts, the reason for the reduction of long positions on EUR/USD is the slow vaccination in the eurozone and the improvement in economic indicators in the US amid expectations of increased fiscal stimulus.

"Given that the bulk of the dollar's consolidation is probably behind us, and the topic of reflation is still relevant, we expect the EUR/USD undervaluation gap to completely disappear and the short-term fair value of the euro to increase in the coming months," ING wrote.