Euro Consolidates, But Keeps 1.3500 In Sight

Includes: FXE, UDN, UUP
by: FXstreet

The dollar is stronger on balance as markets turned more cautious on Monday, although most crosses are consolidating in ranges as stocks in Europe and the U.S. take a breather at multi-years highs.

The euro is little changed, recovering from early losses despite soft eurozone data, although momentum is lacking and EUR/USD remains well within its Friday range, oscillating between 1.3425 and 1.3480 without a clear driver.

In the U.S., a much better than expected durable goods orders report was offset by disappointing home sales, leaving investors undecided and indexes mixed on Wall Street.

"While financial markets have started the week in a somewhat diffident mood, foreign currencies could recover later in the week," says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank. "The key events this week are from the U.S. -- the Federal Reserve should continue with its quantitative easing policy, while economists expect another steady jobs report."

Euro Technicals Favor A Bullish Continuation

After reaching an 11-month high of 1.3478 on Friday, the EUR/USD entered a consolidation phase on Monday, and even though hourly chats show a neutral picture, longer-term indicators remain bullish. A break above the 1.3480/85 zone (January 25/2012 highs) would open the doors for a continuation toward the major 1.3500 level, while the bearish pressure could increase only below 1.3390, delaying bulls and extending the corrective/consolidative phase.

"Overall, we remain bullish near term on EUR/USD, and the EUR crosses still look like better buys to us as well," says the TD Securities team. "That suggests to us this modest consolidation is a buying opportunity. 1.3400 should provide solid support."

Meanwhile, Marc Chandler, an analyst at BBH, notes that the next immediate target is near 1.3500, which also corresponds with a 50% retracement of the euro's decline from its last attempt at 1.5000 back in May 2011. "The 1.3400 area should now provide support for the break out."

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