The euro's bleeding against the greenback has been contained at the psychological 1.3000 level, where the pair seems to have found a relative support. The EUR/USD reversed earlier losses in the American afternoon, however, it failed to extend its recovery above 1.3090 and has ended the week lower.
EUR/USD came under pressure this week after touching 1.3300 on Wednesday, as the U.S. budget deal euphoria evaporated and was weighed down by the Fed minutes, which showed some members think it is appropriate to end the bond-buying programs before the end of 2013.
But the optimism returned on Friday with relative good employment data, and the U.S. stocks rallying and closing an impressive week, with the S&P 500 ending at 5-year highs after climbing 4.6% on the week. The Dow added 3.8% this week; Nasdaq rose 4.8%.
In this line, Scotiabank expects the EUR/USD to remain trading at 1.3000 during Q1. Camilla Sutton, Chief Currency Strategist at Scotiabank, suggests, "The trading pattern since yesterday confirms that it is central bank policy that is proving the most important driver of EUR, making next week's (January 10th) ECB meeting particularly important. We hold a Q1 '13 EUR target of 1.30 and a year-end forecast of 1.27."
It seems that the dollar is losing adepts, as the FXstreet.com Experts, Banks and Brokers' poll shows a less bearish stance for the EUR/USD, with the pair mostly expected to remain neutral in the 1.28/1.33 area for this first quarter of the year. The weekly forecast in the EUR/USD is 1.3073, according to the poll.
Nevertheless, "stalling ahead of 1.3000 support, EUR/USD continues to exude a bearish bias," comments Richard Lee, FXstreet.com analyst. "Price action remains suppressed by resistance via the 1.3125 December 5th session high, which is dampening any advances on the 1.3200." Lee expects the 1.2942 level to be tested in the near term.
The Banking Week Ahead
The next week will be focused into the ECB and BOE meetings. BK analyst Kathy Lien expects "the ECB to be relatively comfortable with the current level of monetary policy. Bond yields in Spain and Italy have fallen sharply as the sovereign stress in the region remains well contained."
The sentiment is being bolstered by two central bank announcements. And, as Richard Lee said, "although nothing really new is expected, both events are still likely to take the lion's share of attention."
Next week's main events are:
1. European Central Bank Interest Rate Decision (Jan 10th)
2. Bank of England Interest Rate Decision (Jan 10th)
3. UK Industrial Production (Jan 11th)
4. China Industrial Production (Jan 09)
5. US Monthly Budget Statement (Jan 11)