Euro Torn Between 1.3300 And 1.3400

Includes: FXE, UDN, UUP
by: FXstreet

The euro continues to consolidate for a second day against the dollar after failing to break decisively above the 1.3400 mark and with the downside contained by the 1.3300 area. Even as the EUR/USD shows a slight negative tone today, it lacks real strength either side of the board.

The shared currency slid during the European session, weighed by disappointing German GDP figures, but found support ahead of the 1.3300 mark and managed to trim losses afterward. Meanwhile, the pound continues to underperform amid fears of a prolonged recession in the U.K., while the yen strengthened after Japan's economy minister warned against excessive yen weakness.

In the US, stocks area broadly lower after the latest string of data came in mixed but also dragged by technology and financials shares. While U.S. retail sales grew more than expected in December, manufacturing activity in the NY area contracted once again in January.

Euro remains supported by 1.3300

With EUR/USD retracing some of its gains, 1.3300 comes as immediate and important support. A break below could accelerate losses toward the 1.3270/50 zone ahead of 1.3200. On the upside, the pair needs a clear break above 1.3400 to attempt a rally towards 1.3485 (2012 highs).

According to the TD Securities team, the EUR, managed to remain in consolidation mode overnight amid S&P upgrade of Finland's outlook and German GDP data, "but with broad USD strength in recent hours and a warning from Fitch that Spain could be downgraded even if it does request a bailout (note Fitch is currently one notch higher than its peers), EUR/USD is looking heavy", they comment. "Technically, EUR/USD still looks quite bullish to us in a broader sense however, and the 1.3300 should provide decent support-marking a potential 'buy zone'".

Meanwhile, Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank comments that while currency markets are consolidating for a second day, they maintain a slight bias toward foreign currency gains in the near-term.

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