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The euro retreated from a 7-week high on Wednesday, as markets' optimism was tempered by a softer-than-expected ADP reading, while investors continue to await a resolution on "fiscal cliff" talks.

Ahead of the U.S. government employment data, ADP reported that U.S. private sector employment increased by a more modest 118,000 in November, down from 157,000 the month before. Additionally, politicians continue to send mixed signals about budget talks, putting further pressure on risky assets. However, the bigger weigh for the single currency seems to be the upcoming ECB meeting tomorrow, with investors starting to price in a possible rate cut.

Euro retreats from 7-week high, key events ahead

So, the euro managed to print a new high of 1.3125 at the beginning of the European session, but has sold off, returning to the 1.3060 support area during the NY trade. A break below 1.3050 (yesterday's low), could put further pressure on EUR/USD sending the cross to next significant support at 1.3010. Meanwhile, if the euro manages to regain 1.3100, focus would switch back to the upside targets, with 1.3140 and 1.3170 in line.

The BBH analyst team, points out that even though the USD stabilized today, with no perceptible progress on the U.S. fiscal talks, prospects for an exceptionally soft jobs report in 48 hours, and the anticipation that next week the Federal Reserve will expand its QE3+ operation, the greenback will remain vulnerable.

Meanwhile, Nick Bennenbroek, Head of Currency Strategy, analyst at Wells Fargo Bank, argues that there is no strong near-term directional bias. "Several key events are due over the next couple of days, including U.K. and Eurozone monetary policy announcements, the U.S. nonfarm payrolls report, and the conclusion of Greece's debt buyback offer", the analyst commented. "While we don't have strong near-term directional views, the risk is that the consolidation in foreign currencies continues".

Source: Euro Fails To Hold Above 1.3100