Is the Euro a basket case or is it the Dollar? After hitting a 2-month low of 1.2660 on Tuesday, the Euro managed to stage a recovery and to post intra-week high at 1.2800 on Thursday, but the pair was slapped again and launched to the 1.2700 area. However, too many movements across the week to just close around 20 pips above previous weekly close at 1.2740.
The Euro has posted its first positive weekly close against the Dollar in 4 weeks and with the former bottom of the range at 1.2800 acting now as resistance. The downside remains vulnerable for EUR/USD.
According to the Experts, Banks and Independents' FXstreet.com Forecast Poll, the bearish continuation for the Euro is the common bias among poll participants, but there is a strong level to break at 1.2700 area if bears want to go further.
As for the short term, "the hourly chart shows price broke below the ascendant trend line coming from 1.2660 and remains now limited by 12740/50 Fibonacci area," comments Valeria Bednarik from FXstreet.com. "Immediate support comes around 1.2710/20 area, while bigger stops are lined below 1.2690 area. Only below bears will regain full control of the pair."
Touching more macro-economic and fundamental things and following days of concerns, "very constructive" talks regarding the US 'fiscal cliff' between President Obama and the Congressional leaders have acted as support for the upbeat momentum in the stock markets.
In this line, the US dollar hinges on key issues: Higher taxes, a reduction in deductions and a reduction in spending. "These key points are likely to keep both sides far apart on the bargaining table, extending the debate and bringing the world's largest economy closer to the activation of the fiscal cliff," comments FXstreet.com analyst Richard Lee. "The sentiment will weigh on dollar bulls, especially against the European Euro. Although the EU is still in the midst of a financial debacle, bearish effects from the US fiscal cliff will likely trump Euro pessimism."
Nevertheless, TD Securities analysts believe that the EUR/USD is trading more on technical than fundamentals. "Considering that the single currency managed to move higher yesterday in the aftermath of the confirmation that it is in an official recession, we are clearly in an environment where fundamentals have taken a back seat," they wrote, eying Tuesday's low of 1.2662 as support and expecting the 200-day moving average, near 1.2810, to act as resistance.
But on the other side, the Wells Fargo team argues that given the mixed nature of recent FX trading, currency markets will likely remain reactive to headlines. "While we don't have a strong directional view, we are more inclined to downside rather than upside for most foreign currencies over the near-term," they say.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.