The euro recovered from a 2-month low versus the dollar as risk sentiment remained steady on Monday after Greece parliament approved the 2013 budget and as market didn't seem concerned over the general lack of agreement regarding the disbursement of the next tranche of aid.
Focus now turns to the eurozone finance ministers meeting tonight, although they were not expected to release fresh bailout funds for Greece. In Spain, Prime Minister Rajoy is still playing hard to get 2 months after the ECB announced its OMT program. So in the absence of news and with U.S. markets partially closed due to Veteran's Day, trading is likely to remain subdued.
Euro consolidates above 2-month low, still pressured
The euro managed to recover from a 2-month low of 1.2689 scored last Friday, and has spent most of the day in a tight range just above the 1.2700 psychological level after 3 consecutive days of losses. Even though intraday little action is expected, EUR/USD continues to look weak in the medium term, having lost several supports including its 200-day SMA. It was last virtually unchanged at the 1.2710/15 zone.
Loss of last week low of 1.2689 would target 1.2635 (100-day SMA) and then the 1.2605 level, which represents the 50% retracement of the broader 1.2040/1.3171 rally. On the upside, only regain of the 1.2800/13 area (psychological level/200-day SMA) could ease the bearish pressure.
"The early bid on the Greek news stalled in the low 1.27 area and the market really has to get back through 1.2780 from a technical point of view to have any chance of steadying near-term. We see support in the 1.2630/35 area", says the TD Securities team. Meanwhile, fundamentally, TD Securities analysts remain bearish EUR (target USD1.25 by year-end) but they continue to note the fact that longer-term technical factors are still more EUR supportive.
Meanwhile, the Wells Fargo team holds a slight bias towards strength in the greenback and yen for the coming week. "No key decisions are expected this week in addressing the U.S. fiscal cliff or further financing for Greece - while that lack of progress won't be a surprise, the continued wait could keep financial markets in a cautious mood", they explain.
U.S. fiscal cliff on focus
In the meantime, the U.S. fiscal cliff drama would likely continue to weigh on the USD as the deadline approaches. "Democrats and Republicans alike have been reaching out to each other with some leading party members signaling a willingness to make compromises, but it is too early to tell if this is actually enough to strike a deal ahead of the deadline in December", commented Danske Bank analysts.