Euro Climbs To 1.3000 With The Fed In View

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Includes: FXE, UDN, UUP
by: FXstreet

The euro made its way back to the 1.3000 level on Tuesday, underpinned by positive market sentiment and better-than-expected eurozone data. U.S. and European markets also advanced as investors await the Fed monetary policy decision.

While speculation the Fed could signal more aggressive quantitative easing in the near term is weighing on the greenback, the lack of progress in negotiations about the U.S. "fiscal cliff" has kept agents sidelined in recent weeks, preventing FX crosses to show decisive moves.

Euro reaches 1.3000, short-term bias remains positive

EUR/USD managed to briefly rise above the 1.3000 mark and hit a high of 1.3006 but lacked momentum to extend gains past that level as investors remain cautious ahead of the FOMC. It was last up 0.4% at 1.2990.

From a technical view, as the short term picture remains positive, a decisive break above 1.3000 could led the pair toward the 1.3020/30 zone ahead of 1.3070. However, repeated failure here could see the EUR/USD slid back to the 1.2900 area.

"The move in EUR/CHF has helped the overall EUR outperformance. Most notably, EUR/USD is currently testing a quite important pivot point at 1.30", said the TD Securities team. "A break above there should see a quick move to last week's high of 1.3124, while a rejection would look to a test of 1.2900".

However, on a wider view, the EUR/USD continues to trade within its 1.2660/1.3170 range, unable to determine a long-term direction.

The FOMC tomorrow, the SNB on Thursday, Japanese elections over the weekend and fiscal cliff talks should continue to drive the FX market short-term. "In the absence of any U.S. budget or European debt news, tomorrow's Fed announcement should remain the market's main focus and, for the very near-term, our bias remains towards further weakness in the greenback", says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.

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