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In a choppy session, the EUR/USD traded on range just above the 1.3000 level, with the pair closing Tuesday 0.17% above the open. In this way, the single currency maintained positive ground, with a euphoric Wall Street and a firm greenback.

Is the dollar trading on a pro-risk trade? Positive data in Europe and the United States fueled a rally in stocks, with the Dow hitting all-time highs, but European currencies falling on the release. In other words, "the dynamic in the currency market has changed radically with high beta currencies no longer receiving the benefit of risk flows," pointed out BK's analyst, Boris Schlossberg, in a recent report.

The historical negative correlation between stocks and the USD looks broken in the last days. In the past, good data meant a risk environment with risky currencies such as the GBP and EUR rising against the USD, but that's no longer happening lately. "The dollar is suddenly taking on the characteristics of the growth trade as currency investors buy the buck on positive US data," Schlossberg noted.

He also stated that "It will be interesting to see if this trend persists into the NFP report, in which case, both EUR/USD and GBP/USD could break their recent lows without any additional bad economic news from those regions."

The GBP/USD's recovery was capped at 1.5200, with the pair moving back to the 1.5100 zone. Other major crosses remain well within their recent ranges as investors hold a cautious mood ahead of the ECB and BoE decisions and the anticipated NFP report.

EUR/USD Directionless Ahead Of Banks And Employment

With major crosses trading on range just ahead of the main developments in the week, the EUR/USD seems to be waiting for a catalyst. Investors are doubtful about a possible ECB interest rate cut, but employment seems to top market consensus. The overall sentiment is that the U.S. is turning on its economic engines.

In addition, there are the Italian elections, with additional pressure for the euro. So, is the euro a weak currency right now? Jane Foley, Chief Currency Strategist at Rabobank, suggests the euro would face domestic headwinds stemming from Italy, Cyprus and Spain, while soft data in the upcoming periods should not be ruled out. "In summary, despite the downside risks, on the back of the QE headwinds undermining the USD and indeed, the position effect on risk appetite that the current huge level of liquidity is likely to have, we are reluctant to call EUR/USD significantly lower in the coming months," she remarked.

Foley also added, "On balance, over the next few weeks, we anticipate a continuation of a jittery range around the EUR/USD 1.29 to 1.32 region." Wells Fargo's analyst Nick Bennenbroek agrees with Foley, as he believes that, "With the Italian political situation still somewhat uncertain, back and forward trading could continue ahead of key jobs data and central bank meetings towards the end of the week."

However, according to Technical Strategist William Moore at RBS, "any support level has a lot of downside momentum to stop, and around here at 1.3000, is so far proving quite resilient. Beneath there, the extended neckline at 1.2896 sits waiting and 1.2730 waits even lower. The bias here is that the market's slightly oversold here, and one of these levels will provide some respite from the downtrend."

As for the short term, with the EUR/USD up 0.17% at 1.3050, next resistance levels align at 1.3101 (high March 1) ahead of 1.3108 (MA10d) and then 1.3114 (Ichimoku Cloud Base). On the flip side, support levels line up at 1.3016 (low March 5) ahead of 1.2982 (low March 4) and then 1.2966 (2013 low March 1).

Source: Forex: Dollar Firm In A Pro-Risk Environment, But EUR/USD Remains Directionless