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EUR/USD, despite displaying a wild range on Tuesday, remains bottled up in a +140 pips range between 1.3260 and 1.34. Once the pair breaks one of the edges, expect higher participation in this market.

Yesterday (Tuesday), the euro was buffeted aggressively first south, testing the range low. Yet the visit was ephemeral after the surprisingly upbeat reading in the German confidence index, giving the shared-currency a major boost within its familiar range.

According to Boris Schlossberg, co-founder at BKAseetManagement:

This was the second month in a row that German sentiment improved considerably suggesting that growth in Europe's biggest economy may be reviving. However, the ZEW survey which is a poll mainly of investment professionals tends to be skewed by financial market performance and the upcoming IFO report which deals with the business sector should be a more accurate gauge of economic activity.

In the U.S., House Republicans are considering to kick the can down the road and extend the debt ceiling deadline through an extension of the U.S. government's borrowing capacity until May 19th. In doing so, they would buy Congress nearly four additional months to work out a deal that will hopefully involve a combination of spending cuts and tax hikes.

In view of Kathy Lien, Bori's partner at BKAssetManagement, and co-founder too,

the weakness in the dollar and rally in stocks reflects an improvement in risk appetite that is rooted in the assumption that the debt ceiling won't be an issue for the next few months. As a result, the S&P 500 climbed to a 5 year high today. Only a few currencies have benefited from the rally, which suggests that there could be a catch-up move in pairs such as the EUR/USD in the coming days.

Going forward, and without any major event of note neither in Europe nor in the U.S., the technical picture in EUR/USD, as mentioned, remains inconclusive, with the recent moves still missing the final clue on "whether all this could be part of a much broader uptrend or countertrend rally" says John Normand, FX strategist at JPMorgan.

John adds:

In both cases the market would have to clear key-resistance at 1.3487/93 (2012 high/50 %) whereas the upside would be capped around 1.3782 (weekly Ichimoku-lagging) or at 1.4259 (int. 76.4 %) in case we are dealing with a counter trend rally only. Below 1.3487/93 though, this market remains vulnerable and at risk of potentially resuming the pre-July 2012 bear trend which includes a re-test of former lows from 2010 and 2005 at 1.1876 and at 1.1641. For the latter to receive fresh support though, it would take breaks below pivotal support at 1.3127 and ultimately below weekly trend line support at 1.3011.

Source: Traders Defend EUR/USD Range Tooth And Nail