On Monday, the French newspaper Libération published as its front page a picture of Italian former Prime Minister Silvio Berlusconi with the phrase "Le Retour de la Momie" (the Return of the Mummy). Berlusconi was the biggest news in the weekend and beside Monti's possible resignation, Italy focused the market's attention. However, the EUR/USD refused to fall.
The EUR/USD closed the Monday session at intra-day highs around 1.2940, extending its recovery from the 1.2885 level reached in the European session and posting 0.40% daily gains. As for the short term, the EUR/USD is yet stalled around 1.2940, immediate resistance level. "Indicators in the mentioned time frame surged to positive territory, yet remain flat, showing not enough upward momentum," comments Valeria Bednarik, FXstreet.com's Chief Analyst. "The rally may extend near 1.2970 if the dollar remains under pressure, yet more gains seem unlikely at the time being."
U.S. stocks finished Monday with gains amid fiscal cliff developments and leaving behind the effervescence out of the political arena in Italy. The Dow recorded its fourth positive day in row. The Dollar Index ground lower on Monday, as risk appetite has prevailed among investors, although it keeps trading above the psychological mark at 80.00
Against the greenback, FXstreet.com's analyst Richard Lee states that Monti's resignation is no doubt a blow for the euro. "The prime minister was seen as working alongside fellow EU leaders" while "the scandal riddled politician is likely to entertain the idea of pulling back on European austerity and questioning the necessity of EU membership."
"The fundamental outlook will likely reinforce technical resistance at 1.2965 in the short term," Lee adds. "Lending to continued bearish declines towards the 1.2800 round figure support."
On a wider picture, the Rabobank analyst team believes that the EUR/USD will range bound between 1.28-1.30 on 1m view. According to Jane Foley, Senior Currency Strategist at Rabobank, the Bank expects "that the FOMC will step up its QE policy soon and maintain pressure on the USD."
In this line, the Fxstreet.com Banks, Experts and Brokers Forecast expects 1.2800 as a one-month target, and as low as 1.2674 in the three-month horizon. Current reaction in the EUR/USD is not seen as an opportunity to buy if we take Friday's target at 1.2928.
Meanwhile, in a technical point of view, City Index's analyst Ashraf Laidi expects the "EUR/USD to rebound towards 1.32, followed by $1.33-34 nearing December." Laidi states that "the ensuing reverse Head & Shoulder formation appearing in EUR/USD is a classic (and rare) bullish formation, with clear delineation of: i) required preceding sell-off; ii) isolated low, creating a left shoulder; iii) renewed sell-off to create a bottom or a head; iv) subsequent peak, creating a right shoulder; and v) a straight neckline coinciding with trendline resistance."
"The theoretical target interpolated from the reverse H&S suggests $1.38-40 is viable in by end of Q1 2013," adds Laidi.
The Day Ahead
As for tomorrow, investors must pay attention to the German November ZEW Economic Sentiment and the U.S. October Trade Balance, among others. Specifically, the ZEW survey could pressure the EUR/USD to the upside and to move higher off of 1.2900 support.
Better than expected results will bolster the EURUSD pair higher, "and should be above current estimates of a -11.4 reading," commented FXstreet.com's Richard Lee in a recent preview. "The improvement would stand as the third improvement in the last four months and bolster notions of a recovery."
And off course, keep in mind that FOMC will hold its monthly monetary policy meeting on Wednesday, the last interest rate and policy decision before Christmas.