The euro is taking a breather, consolidating recent gains at the top of its range, after reaching an over 7-month high at the beginning of the week supported by cross buying. EUR/USD finally broke above the 1.3172 level, which capped rallies in September, and reached its highest since early May at 1.3185. However, the pair lost momentum and entered a consolidation phase that has extended through American hours.
With only second-tier data in the calendar and no news from Europe, focus remains on the U.S. "fiscal cliff" talks. Comments from Republican House leader Boehner helped to boost sentiment as he indicated a willingness to raise tax rates for households earning more than $1 million. U.S. stocks are broadly higher while European indexes trade mixed.
"Investors have so far remained hopeful that an agreement (on U.S. budget talks) can be reached in a sufficiently timely manner", says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank. "However, with a year-end deadline for a deal now looming closer, those budget developments - or lack thereof - should become increasingly important through the end of December".
Euro hits 7-month high, holds positive outlook
The shared currency set a fresh 7 ½-month high of 1.3185 on Monday, keeping short-term focus on the upside. A break above that level would open the door for a test of 1.3200 first and then the 1.3250/80 area. However, loss of 1.3120, immediate support zone, could delay the bullish potential. The pair was last at the 1.3170 zone.
"For EUR/USD intraday, a small gap on the hourly chart on Friday (between 1.3140/43) implies there could be some further, minor, back and filling, but the bigger picture on the daily and weekly charts looks rather bullish after Friday's close", says the TD Securities team. "The daily close above the neckline of the head & shoulders continuation brings a target in the upper 1.35 area, while the weekly close implies a target closer to 1.43/44 in the months ahead".
Meanwhile, the UBS analyst team holds a bullish view on EUR/USD. "With the closing break above 1.3150, the risk is now for extension of the strength to 1.3284 and then 1.3491", they comment. "Support lies at 1.3041".
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