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The dollar is broadly lower on Tuesday as positive sentiment continues to prevail, with the euro and the pound reaching multi-week highs, while the AUD and the CAD are also stronger after the RBA and the BoC monetary policy decisions.

With not much in the economic calendar and in the absence of news from Europe, the dollar extended losses versus most competitors as investors continue to focus on the "fiscal cliff" with U.S. political leaders readied for more budgets talks.

"The main considerations for markets still appears to be the looming fiscal cliff, weaker data, and the prospects for additional QE to be announced next week by the Federal Reserve", says the BBH analyst team. At the same time, according to analysts, tail risks emanating from euro area have diminished, even if details on Greece's new program are not clear, or if the negotiations over bank supervision in Europe at today's EU finance minister meeting are more protracted.

From TD Securities team view, neither the lack of progress on the fiscal cliff negotiations nor a big (sub-50) miss on the ISM yesterday were able to dampen sentiment for long. "That has seen the USD broadly sold, outperforming only the CHF after the Credit Suisse announcement to place a charge on bank deposits".

Euro peeps above 1.3100

The euro briefly rose above the 1.3100 mark against the dollar, printing a fresh 6-week high of 1.3105 before losing steam. The pair was last up 0.3% at the 1.3075 zone. From a technical view, the pair holds a bullish bias and a clear break above 1.3100 would target 1.3170, September's double-top. On the other hand, repeated failure at the psychological level could discourage euro's bulls and sent the cross to the 1.3050 area fairly quickly.

"With the EUR grinding higher in the face of any fundamental developments, looking at the technical picture makes it hard to question the rally here. That suggests it is a buy on dips for now, but as we've pointed out recently there is the risk that the ECB is more dovish than expected on Thursday, and even the off-chance of a rate cut", says TD Securities. "That means it might be prudent to pare back longs ahead that event. On the charts for EUR/USD, 1.0340/50 is the next sticky point above".

Looking ahead, we still have the ECB and the BoE monetary policy decisions on Thursday and the U.S. employment report on Friday which could provide some volatility and even change EUR/USD near-term direction.

Source: USD Lower With Fiscal Cliff In View