The euro made several attempts to break the 1.3100 key resistance against the U.S. dollar on Thursday, but the level remained intact with the EUR/USD setting back slightly to trade between 1.3065 and 1.3075 in the last couple of hours.
The EUR/USD advanced following the Federal Reserve's announcement of a new U.S. Treasuries purchase program, but lacked momentum to break above the 1.3100 psychological level. Early in the day, European finance ministers agreed on a banking union with the ECB as supervisor by March 2014.
Later on in the session, House Speaker John Boehner affirmed that "serious differences" remain between him and President Obama. Investors were nervous about the talks, and the market lost initial gains. "The President still has not made an offer that meets the standards, but Republicans have," accused Boehner in a press conference. "It's clear that the President is just not serious about cutting spending, but spending is the problem."
Back on currencies, FXstreet.com Chief Analyst Valeria Bednarik believes that the dollar in trouble. The latest economic developments on both shores of the Atlantic favor the upside in the short/mid term, with a break above 1.3100 pointing for a retest of 1.3170 highs. Dips towards 1.2970/1.3000 will likely be seen as buying opportunities, as bears can actually gain control of the pair only below 1.2880.
Currently, the EUR/USD is trading at 1.3075, 0.08% above Thursday's opening price. As for the short term, Bednarik locates immediate supports at 1.3040, 1.3000 and 1.2970, while she sees resistances at 1.3100, 1.3135 and 1.3170.
In the middle term, Wespac states that investors must watch EUR/USD for swings in relative growth. The Westpac FX Strategy team recommends targeting 1.3500 in Q1 before selling it for 1.2500 on swings in relative growth.
Along the same line, City Index's analyst Ashraf Laidi expects the "EUR/USD to rebound towards 1.32, followed by $1.33-34 nearing the end of 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 selloff; ii) isolated low, creating a left shoulder; iii) a 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.
On the other hand, Senior Analyst K. Kirkegaard at Danske Bank affirms that the USD would remain weak in medium/long term. Danske's analyst concluded that the final expansion of the Fed's balance sheet would be a stunning $1.020 billion, negatively impacting the U.S. dollar. "We thus maintain our bullish carry view and remain long AUD, RUB, NOK against USD… EUR/USD may not be the most obvious trade to position for Fed balance sheet expansion, but we still look for a move higher over the coming quarters."
The Fundamental Day Ahead
Friday won't have the volatility of the previous days, as there isn't a whole lot of economic data scheduled to end the week, "especially after the Fed announcement," says FXstreet.com analyst Richard Lee. "As a result, tomorrow's action will boil down to three main reports spread throughout the day."
The German Flash Manufacturing PMI at 8:28 GMT (3:30 a.m. EST), U.S. Consumer Price Index at 13:30 GMT (8:30 a.m. EST) and the U.S. Flash Manufacturing PMI at 13:58 GMT (9:00 a.m. EST) will keep the attention of the market.