Last week, the euro/dollar pair reached a new local high and touched the level of 1.2177. After that, it stopped its rally.

The euro managed to hit the levels logged in spring 2018. However, it may unexpectedly drop.

The Brexit issue is still weighing on currencies. There is a risk that the UK may leave the EU without a trade deal. This will have a significant influence on the pound sterling as early as next week.

The euro is still afloat, but there are a lot of factors that are weighing on it.

Yesterday, it became known that Bavaria declared an emergency situation for the second time during the pandemic. The number of new virus cases is still rising. During the emergency meeting, the local authorities decided to delay loosening of the containment measures that will be in force during winter holidays.

This period will begin on December 9 and it will last up to January 9. Markus Zeder, Bavarian Prime Minister, said they would not change their decision as the number of infected people was too high.

Educational institutions will partially switch to distance learning. Moreover, the curfew from 21.00 to 5.00 will be introduced in the regions, where 200 of 100 thousand people get ill. Thus, people in such regions will be allowed to leave their homes only in case of a sound reason.

Today, Germany announced that it will impose tougher bans on movement.

The Chancellor's administration plans to hold an online meeting with the regions before Christmas in order to discuss new restrictive measures.

Notably, Germany has already closed restaurants, gyms and cinemas, but allowed schools and much of the economy to continue operating. The measures imposed at the beginning of November have not been effective.

Summing up, we can say that the pressure on the euro is rising. If there is negative news about Brexit and COVID-19, the euro may sharply reverse.

According to the technical analysis, last week, the euro advanced by more than 250 pips. It is quite a significant jump.

Despite the overbought conditions, the euro did not drop enough to reduce pressure on long positions.

On December 4, market dynamic was just 67 pips. It almost reached the average reading. The volatility level allows traders to earn money.

On the daily trading chart, the price is fluctuating at the peak of its inertial uptrend.

Today, traders are focused on the macroeconomic reports from the eurozone and the US.

According to the current trading chart, the euro is dropping following the British pound. However, its decline is less significant than one of the pound sterling.

There is still a chance that the euro will show a full-scale downward correction. Traders should be focused on the level of 1.2000.

At the same time, the news flow has a significant influence on both currencies. News about containment measures and Brexit may result in high speculative activity in the market.

That is why it is recommended to follow news reports.

Indicator analysis

According to the technical analysis of the one-minute chart, there is a buy signal that appeared due to the rebound after the sharp reversal at the beginning of the European session. On the one-hour chart, there is a sell signal due to the drop that occured in the morning. The daily chart points to the mid-term trend.

Volatility for the week/Measurement of volatility: month, quarter, year

The volatility measurement reflects the average daily fluctuation calculated for a month/quarter/year.

At the moment, the market dynamic is 62 pips that is 18% below the average level.However, the volatility may increase amid the news flow.

Key levels

Resistance levels: 1.2200*; 1.2450**; 1.2550; 1.2825.

Support levels: 1.2000***; 1.1890-1.1900- 1.1920**; 1.1810*; 1.1700.

* Periodic level

** Range level

***Psychological level