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The euro closed its first negative session against the dollar after six positive trading days, which took the pair from 1.2735 (Nov 21st low) to reach November highs at 1.3010. But the EUR/USD was unable to keep levels above 1.3000, and the pair pulled back from its highs on Greece's financial situation and new fiscal cliff fears. The EUR/USD closed Tuesday at 1.2630.

Risk aversion ruled during the New York session as the market focused again on the potential fallout of the delicate fiscal negotiations in the U.S. The USD rallied and stocks fell despite upbeat U.S. consumer confidence and durable goods orders data.

After reaching a high of 1.3008 on news that eurozone finance ministers agreed to release further funding for Greece in December, the EUR/USD quickly lost momentum and turned negative, having fallen to a low of 1.2914 before the 100-hour SMA contained the slide.

EUR/USD Setback To Continue?

The hourly chart shows prices broke below a short-term ascendant trend line, "and even completed a pullback to 1.2970 before resuming the downside, while indicators head south below their midlines, all of which supports more losses ahead," comments Valeria Bednarik from FXstreet.com. "In the four hours chart, prices tested the 20 SMA at the mentioned daily low, immediate support level: Once below that, the bearish momentum should accelerate, exposing the 1.2880/90 price zone."

In the wider picture, Camilla Sutton, Chief Currency Strategist at Scotiabank, comments that "there remains tremendous uncertainty for Greece, including filling in the details on the debt buy-back and gaining approval from national parliaments… Accordingly, a EUR rally on the back of this was likely too optimistic. We expect EUR to drift lower into year-end, closing at 1.27."

But Rabobank's Senior Currency Strategist Jane Foley argues that the "EUR/USD had already traveled higher from the USD1.2850 area at the end of the week, aided by optimism that a deal was on the cards for this week." As for the final weeks of the year, "the EUR is likely to remain contained by the poor economic backdrop in the eurozone and concerns about the precarious economic position of Spain... That said, the remaining weeks of the year are set to be dominated by talk over how the U.S. will deal with its fiscal crisis." Rabobank expects "the EUR/USD1.28 to 1.30 range to contain most activity in the final weeks of the year," concludes Foley.

In a fundamental point of view, FXstreet.com analyst Richard Lee thinks that "although trend momentum is always questionable, the current rally may have sturdy legs this time around." Lee believes that housing sector gains, a capital goods surge and stabilized Manufacturing Sector "add to mounting evidence that the U.S. economy may be on track for a better than anticipated recovery this year." According to Lee, this notion will sustain the greenback, "especially ahead of the GDP report later this week."

Source: EUR/USD Retreats From Highs But Holds Above 1.2900