Euro Surges On Greek Headlines And U.S. Fiscal Cliff Hopes

 |  Includes: FXE, UDN, UUP
by: FXstreet

The dollar came under pressure on Monday while stocks rose broadly as investors were encouraged by signs of progress in talks to resolve the fiscal cliff in the U.S.

Ahead of a Eurogroup meeting, which should ease the immediate funding pressure on Greece or incur the market's disappointment, the euro advanced through the 1.2800 area versus the dollar amid reports that Greece would get €44 billion on Dec 5. In the U.S., upbeat housing data also helped to boost Wall Street indexes and risk appetite.

Euro Back Above 1.2800, Outlook Improves

EUR/USD enjoyed a positive bias on Monday, and rose to a two-week high of 1.2819 during the NY session, after trading below 1.2700 before the weekend. It was last up 0.5% at the 1.2810 area.

So near-term outlook has improved, and a close above the 1.2800/05 psychological level and 200-day SMA should ease the bearish pressure and turn focus toward the 1.2875 region. On the downside, loss of 1.2700 would leave the pair vulnerable, and a slide toward 1.2600 should not be dismissed.

"With no U.S. budget talks scheduled this week and with some progress expected from Europe, we have a bias towards foreign currency strength in the coming days, though we still expect there will be a few bumps along the road to an eventual U.S. budget agreement," the Wells Fargo team noted.

Meanwhile, analysts at Danske Bank commented that they still see the underlying trend as higher in EUR/USD in 2013, due to strong Fed easing and improving global macro data, but the U.S. fiscal cliff negotiations still remain the key event risk.

"Notwithstanding that the U.S. fiscal cliff could trigger a U.S. recession, according to the latest IMM data, has been triggering dollar buying. Investors have been unwinding short dollar positions since early October, and net positioning is now neutral," said the Danske Bank team of analysts. "There is thus room for further re-positioning, which implies more near-term potential for the dollar should fiscal cliff concerns intensify. The move in positions is in line with our short-term view, where we expect EUR/USD to drop towards 1.26 on a 1M horizon."

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