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FXstreet.com (Barcelona) - The European shared currency is admirably firm after a brief bout of bids through the Asian hours, with sellers nowhere to be found after all the heavy offers recorded during early Monday inter-bank trading, when the political upheaval in Italy emboldened speculation that Italian bonds would be dumped.

The bonds were indeed sold off during Europe, as investors demanded in exchange a higher reward to hold debt from a country that may be back at the centre of the eurozone's sovereign debt crisis should structural reforms fail to be implemented under what is likely to be a fragmented result of the early elections.

While there was a thinly veiled surprise in the market about how the Euro could end the day marginally higher at $1.2935, the truth is that 1.2880 was a proven support where bids could be re-instated seeking decent risk reward scenarios.

The Italian PM Monti's comments that he was confident the snap elections could result in a highly responsible government, together with continuous threats from Spanish FinMin Luis de Guindos over the possibility of requesting a bailout in 2013 were simplistically claimed as a factors to have also eased Euro pressure. A simpler explanation would be the typical lack of volumes and volatility ahead of a US fiscal cliff resolution, and most importantly, the Fed's new policy tools announcement on Wednesday.

According to Kathy Lien, co-founder at BKAssetManagement, unlike the Federal Reserve, which is expected to increase its balance sheet further on Wednesday:

The ECB is - committed to easy monetary policy too - balance sheet has not changed much because no one has asked the central bank to active its Outright Monetary Transactions program; in fact, it has actually benefited from the stability in the region, the reopening of funding markets and the return of deposits, explaining why the EUR/USD refuses to fall ahead of the FOMC meeting.

The TD Securities research team, with regards to the upcoming FOMC, is positioned for a dovish announcement as is most of the market, judging by the USD price action. Analysts say:

We expect a dovish bent and an outline of LSAPs (large scale asset purchases) for the next 3 months. More attention will also be paid to a lack of a fiscal cliff deal. At this time of the month, it looks likely that the US could go over the cliff in January, but find a quick resolution early in the new year.

According to Jane Foley, Senior Currency Strategist at Rabobank:

We expect that the FOMC will step up its QE policy soon and maintain pressure on the USD. We also expect that the ECB's OMT scheme will be triggered potentially in Q1 2013, which should underpin the EUR. While we still see the Eurozone crisis has having the potential to cause pullbacks in EUR/USD in the comings months we see the EUR/USD1.28 to 1.30 range as likely containing most market action on a 1 mth view.

The gentle bounce in the pair has turned Valeria Bednarik, in-house technical strategist at FXstreet.com, cautiously more constructive for the time being, saying that "technical readings present a limited bullish tone," although she acknowledged they are not displaying enough strength to have her convinced about the potential of a stronger recovery. A possible upside resolution is challenged by the 4 hours chart, where:

the pair is still biased lower, with 20 SMA offering dynamic resistance around 1.2970.

Only above this last:

The pair will lose the bearish tone and attempt a recovery above 1.3000.

Valeria concluded. If pressure kicks in, the key support to watch out will be Monday's low at 1.2880, proven reliable support for now.

Source: EUR/USD In Familiar Territory Ahead Of Fed's QE4