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After moving between 1.3015 and 1.3120, the EUR/USD is closing flat on the day at 1.3060. The pair has been trading in consolidation mode after Monday's 270 pips collapse on the back of uncertainty in Italy. In addition, better-than-expected data in the U.S. and Ben Bernanke's comments on stimulus have fueled the USD.

The U.S. dollar continued to advance versus most competitors on Tuesday. The EUR/USD, GBP/USD and the USD/JPY traded in consolidation mode, while the USD/CAD rocketed to its highest since June 2012 at 1.0300, and the AUD/USD weakened to 4-month lows at 1.0200.

As for the short term, the EUR/USD is trading at 1.3060 after recovering from its 8-week low at 1.3017. The next support is at 1.3018 (low January 7) ahead of 1.2998 (low January 4) and finally 1.2996 (low December 12). On the flip side, a breakout of 1.3123 (MA100d) would aim for 1.3319 (high February 25) and then 1.3389 (MA21d).

So is the EUR/USD heading toward the 1.3000 handle? Technically speaking, the single currency holds a bearish tone from hourly to daily charts. With the EUR/USD trading below the 100-hour SMA and the 1.3100 psychological level, there is scope for further losses toward 1.2997 (2013 low). Christopher Vecchio, DailyFX's analyst, believes that below the 1.2995 handle, a move into 1.2875 and 1.2660 shouldn't be ruled out by the end of 1Q13.

In the analyst's view, continued political uncertainty could force Italy into accepting the terms of the OMT in order to calm investors. "This may have limited downside in euro-based pairs now, but don't be surprised by further downside over the coming weeks," Vecchio says.

But FXWW's analyst Sean Lee is not sure about the downside, as he comments that the break in EUR/USD below Fibo support at 1.3060 "hasn't really been confirmed," so he is "cautious in declaring that support has broken." Lee pointed out in a recent report that the heavy month-end flows have started to ease, especially after some wild panic yesterday.

Along this line, according to the RBS Technical Strategist, William Moore, the 1.3040 support has bolstered the EUR/USD. "The basing of the market at 1.3040 leads us to think that we'll see the market drift up to 1.3198, possibly even to 1.3269 before we meet any meaningful resistance again." In the short term, however, risk surrounding Italy has to weigh on the pair in conjunction with the fundamentals.

The Day Ahead:

Tomorrow's docket will kick off with German Import Prices, followed by a gauge of Consumer Confidence in France and the Business Climate in Italy, ahead of the EMU's Consumer Confidence. A speech by ECB's Mario Draghi closes the calendar, and will likely grab investors' attention after the events in Italy.

The United Kingdom will publish its Q4 GDP, and the U.S. will have Durable Goods orders, pending home sales, and the second day of the Bernanke speech.

- German GfK Consumer Confidence (Feb 27 07:00 GMT)
- UK Q4 GDP (Feb 27 09:30 GMT)
- U.S. Durable Goods Orders (Feb 27 13:30 GMT)
- Fed's Bernanke testimony (Feb 27 15:00 GMT)
- U.S. Pending Home Sales (Feb 27 15:00 GMT)

Source: Forex: EUR/USD Closes Flat On The Day After Cataclysm - Heading To 1.3000?