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Another day and the euro continues to dance at the rhythm of headlines, but this time the ones out from the U.S. Even though European issues are far from over, markets' focus has shifted back to the U.S. budget negotiations as the so-called "fiscal cliff" looms.

EUR/USD advanced to a fresh 1-month high of 1.3011 at the beginning of the New York session amid optimism a deal could be reached "by Christmas" on Obama's words, but lacked impetus and as soon as a contradictory headline hit de wires it pulled back.

"The large swings in the market today and yesterday were based on headlines from about the fiscal cliff from U.S. lawmakers. There are at least a dozen politicians who can turn sentiment on a dime at any moment", says Adam Button, editor at ForexLive. "Over the next two weeks it's only going to get worse".

Meanwhile, US data came in overall strong, with GDP growth revised up to 2.7% in Q3 along with upbeat employment and housing reports, which helped underpin US stocks.

Euro prints 1-month high, lacks momentum

The inability to break decisively above the 1.3000/20 area repeatedly this week, has left the EUR/USD a little bit vulnerable. However, as long as 1.2880 support holds, the upside will remain favored. EUR/USD was last up 0.2% on the day at the 1.2980 zone.

"For the EUR, it has been a round trip tour over the past three days, and it is right back to testing Tuesday's high, near the key 1.3000 resistance", said the TD Securities team. "Soft fundamentals aside, the technical picture has a potential to become more constructive in the near term, especially if EUR/USD can decisively break above the high for the week at 1.3008. Buying a break looks to be the best strategy here, because a failure at that level could see us right back toward the lower end of the recent range (near 1.2900) in fairly short order".

Meanwhile, Nick Bennenbroek, Head of Currency Strategy, at the Wells Fargo Bank also see potential for further upside in the cross. "The U.S. budget talks hold the key to the FX market's near-term fortunes - if those talks remain on track, the bias for most foreign currencies remains to the upside".

Source: Euro Finds Tough Resistance, Could It Break It?