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The euro starts the week holding its ground around the psychological $1.30 level against a weak U.S. dollar, still convalescent after being faced with a double negative combo of news last Friday.

The disappointing U.S. NFP data, which suggests there is still QE ammunition by the Fed for quite some time, was only part of the equation that explains the poor USD performance. the second more overlooked element was the stack of big sell orders the USD index had to face at the $83.50 junction, leading to magnified losses before the Friday's New York closing bell.

Looking at the USD index, Marc Chandler, Global Head of Currency Strategy at BBH, sees "a break now of the $81.70-$82.00 band would suggest a deeper correction has begun that could carry it to around $80.70, initially."

As is well known, the Dollar Index is heavily weighted towards the euro, so it is no wonder that technically, "the euro looks constructive, with next upside target near $1.3115," Marc says.

While technically better positioned to capitalize on the ongoing soft tone in the USD, the euro will be facing some fundamental problems of its own, likely to get in the way of the currency, and thus posing some challenges to enjoy a smooth appreciation.

One of the most pressing issues facing the euro now is Portugal, following the country's constitutional court decision last Friday to reject some austerity measures from the 2013 budget.

Over the weekend, Portugal's Prime Minister Pedro Passos Coelho said on Sunday the government will implement further cuts to compensate the unexpected budgetary setback, so that it can meet targets set by international lenders.

Moreover, the EU's economic affairs chief Olli Rehn said that despite that Cyprus is not any sort of test for other bigger countries, large bank depositors may be affected in the future under the new European Union law should a bank fail. According to Valeria Bednarik, chief analyst at FXstreet.com, from a fundamental standpoint, "there seems to be nothing that builds up confidence in the common currency."

Some analysts, like Marc Chandler, expect EUR/USD to hit $1.3115 in the near future, although the context in which the pair is developing its up-leg, according to Valeria, "looks more a short covering than euro self strength". Chandler also agrees that the rally may extend until $1.3110, a key resistance.

Short-term, adding the view of another renowned FX expert like Chris Capre, founder at 2ndSkies, "the euro momentum is up, but I still hold a medium-term bearish bias as I think this rally will hit a wall and will find more sellers waiting above." Chris sees "the first two key levels to rejoin the medium term downtrend would be $1.3107 and $1.3260, while intraday bulls can look towards the daily 20 ema for potential longs, targeting those resistance levels above."

Source: Euro Benefits As USD Index Hits A Wall