The euro's recovery against the U.S. dollar was rejected at the 1.3010 November high. The EUR/USD fell fast to 1.2945 on the back of a cocktail of developments, and following these choppy movements, the pair set a conform zone and traded calm in a narrow range between 1.2965 and 1.2975.
What was the cocktail? First, a well-above-consensus Pending Home Sales in October that spurred fears of QE suspension; second, a big upward revision on U.S. 3Q GDP; third, Democratic leader Chris Van Holland saying that the two sides are not close to a deal on the fiscal cliff; and fourth, a very well-anticipated sell interest just above the 1.3000 mark.
In the opinion of analyst Richard Lee at FXstreet.com, the combination of a strong U.S. Q3 GDP print, plus the recent improvement seen in both the labor market and the housing sector, could prompt investors to start thinking of a good year-end for the greenback. In his own words, "These three reports, in addition to bullish expectations for tomorrow's Chicago PMI survey, continue to fuel dollar gains. The trend is likely to continue as long as economic data remains positive for the world's largest economy and fiscal cliff concerns are kept at a minimum."
On the other hand, BK's analysts Kathy Lien and Boris Schlossberg wrote in a recent article that the market is "caught in the Middle of Washington's War of Words," with such a "Kabuki dance" that is "driving us nuts and reminds us of the days when EUR/USD seesawed on sovereign debt headlines."
Kathy Lien pointed that the "1.30 level is proving to be a huge area of resistance for EUR/USD, which tested but failed to break above this key level four out of the last five trading days." In this line and according to the Bank of Tokyo-Mitsubishi UFJ's European Head of Global Research Derek Halpenny, the EUR/USD "will continue to be contained by the belief that the Fed will maintain an ultra-loose monetary stance."
The BTMU expert believes that a "pop higher in EUR/USD over 1.3000 that looks imminent should be taken as a good opportunity to sell" as far as "the downward trend in EUR/USD is still intact."
The Westpac strategy team agrees with the idea that EUR/USD is likely to struggle above 1.3000, and they attribute very low odds to the September/October double top highs at 1.3150 being taken out. Westpac believes that EUR/USD will find it difficult to sustain any move above 1.3000 looking forward.
But do you think the EUR/USD stand a chance to go up? Let's review the EUR/USD's short-term outlook: The hourly chart shows a slightly bullish tone as indicators head north above their midlines and the price holds above a bullish 20 SMA. Selling interest around 1.3010 has proven strong so far, yet renewed attempts to break higher will likely succeed, with 1.3080 then in sight.
Finally, support levels are at 1.2970, 1.2945, and 1.2910, while the resistance frontier remains at 1.3010, 1.3040, and 1.3080.