The euro closed its sixth positive day in row against the dollar Tuesday with the EUR/USD trading at the highest level since November 18 at 1.3107. The greenback was among the worst performers on Tuesday, as the market continues to focus on the lack of progress on U.S. fiscal cliff talks.
"With the Fiscal Cliff clock still ticking down, the euro has continued to gain ground against the U.S. dollar -- trading just shy of the psychological 1.3100 round figure," notes Richard Lee, Fxstreet.com's analyst. With both political parties still at odds over entitlements and tax revenue, it seems as if the U.S. dollar won't have its day just yet.
Besides that, optimistic comments from euro leaders over the Greek bond buyback plan fueled sentiment, and news about negative interest rates in Switzerland's bank has notably bolstered the single currency against the Swiss franc. The result was a euro trading higher, and the dollar going down on both sentiment and euro strengthening.
In this line, the TD Securities team comments that 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."
The Euro Sets The Battle At 1.3100
At the time of writing, EUR/USD is trading at the 1.3095 zone, 0.25% above its opening price. Immediate resistances for the cross are seen at the 1.3130 zone, followed by 1.3150 and 1.3170, while supports could be found at 1.3070, 1.3050 and 1.3020.
As for the short term, the EUR/USD hourly chart shows prices still developing inside an ascendant channel, "with indicators nearing overbought conditions and 20 SMA acting as dynamic support currently around 1.3065," says Valeria Bednarik, FXstreet.com's analyst. "The 4 hours chart shows technical bullish readings also, with the pair targeting 1.3170, past the September monthly high. Break below 1.3060, the base of the channel, will deny the upward bias and see the pair falling back towards the 1.3000 price zone."
On a wider picture and 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 the TD Securities analyst team. "That means it might be prudent to pare back longs ahead of that event. On the charts for EUR/USD, 1.0340/50 is the next sticky point above."
However, that is "all about to change" when traders get a glimpse into three major U.S. economic releases tomorrow. As FXstreet.com's analyst Richard Lee says, "the ADP Non-Farm Employment, U.S. ISM Non-Manufacturing PMI and Factory Orders surveys are expected to inject some more short-term volatility into the greenback against the euro."
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