The euro set a fresh 2-month low on Tuesday amid uncertainty on how, when, and under what terms Greece will receive its next tranche of aid. However, a media report stating that Germany wants Greece to receive a single €44 billion payment from lenders lifted the single currency back above the 1.2700 level later on the day.
"Eurozone finance ministers yesterday agreed to give Greece an extra two years to reach its deficit targets, but left open the question of how the resulting financing gap would be funded," Nick Bennenbroek, head of currency strategy at Wells Fargo Bank, says.
U.S. stocks wavered while European markets are mixed too, with gains in the U.S. housing sector helping to offset the negative mood.
Euro oscillates but remains weak
So this is how it goes, the focus has turned back to Greece and the euro dances at the rhythm of headlines. Having set a 2-month low of 1.2661 and with the subsequent bounce contained by the 1.2725 area, the EUR/USD has been confined to a sideways consolidation phase.
On a wider view, the pair holds a negative bias, with a break below recent lows targeting 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 1.2800/15 area (psychological level/200-day SMA) could ease the bearish pressure.
According to the Wells Fargo team, further EUR/USD losses seem likely. "Between eurozone debt jitters and the U.S. fiscal cliffs market worries are likely to persist, meaning we maintain a bias for strength in the greenback and the yen, and weakness in most other foreign currencies", they say.
Meanwhile, TD Securities argues that "political and data developments overnight continue to add to the evidence of fundamental weakness for the EUR, and technically the single currency is starting to look weaker as well-still more obviously in the short term at least", they explain. "EUR/USD poked below 1.2700, making new cycle low of 1.2661. We have seen a pop back above 1.27 in recent hours, but selling rallies still looks to be the better option in the near term".