Forex: EUR/USD Keeps 1.3400 Following Weidmann's Intervention

Includes: FXE, UDN, UUP
by: FXstreet

The single currency has been trading under pressure on Monday with the downside exposed at 1.3360, but following J. Weidmann's comments on no-overvalued euro, the EUR/USD has recovered some ground to 1.3400, where the pair remains trapped.

The EUR/USD is currently trading at 1.3405, 0.28% positive on the day. As for the short term, the next resistance at 1.3426 (MA21d) ahead of 1.3430 (high February 8) and finally 1.3462 (low February 5). On the flip side, a breakdown of 1.3360 (hourly lows February 11) would aim for 1.3326 (hourly low February 11) and then 1.3265 (low January 23).

Earlier in the day, Buba's J.Weidmann took ECB President Draghi's relay and is "verbally" pushing the cross to the proximity of 1.3430. J.Weidmann commented that the euro would not be overvalued at current levels, and he emphasized than a lower exchange rate could derail in higher inflation.

On a wider chart, Rabobank sees a potential decline to 1.300 in the medium term. "The pace of January's rise in EUR/USD was faster than we had expected and left us concerned that the degree of investor optimism was out of kilter with economic developments," points out Jane Foley, Senior Currency Strategist at Rabobank. "Over the next few weeks, we expect a consolidative tone to be maintained in EUR/USD."

"However, news from Spain, Italy or even Cyprus has the capacity to create a deeper correction in EUR/USD over the coming months, meaning that there is a good chance that EUR/USD 1.3000 will be seen again before the EUR musters up the energy to launch itself at 1.4000," concluded Foley.

On the other hand, Goldman Sachs affirms its EUR/USD long-term view, as the bank expects a bearish dollar. While downside risk remains in the euro area due to policy implementation risk and growth underperformance linked to front-loaded fiscal tightening, in the longer run -- and after more "muddling through" -- "we expect gradual progress with deeper integration in the euro area, which should ultimately boost the EUR," Goldman Sachs' analyst team adds.

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