After its fourth day of gains and 290 pips from the Friday's bottom, the EUR/USD rose to trade above the 1.3000 key level and reach fresh 2-week highs at 1.3035. Currently, the pair is trading in consolidation mode just above the 1.3000 handle.
In a quiet session, the euro managed to recover early losses against the greenback with the pair trading from opening price at 1.2965 in the Asian morning, but the single currency failed to overcome the 1.3040/50 resistance area once again on Monday. As for the short term, the pair is slightly bearish, according to FXstreet.com's trend index. Indicators are mixed, as the momentum is bearish, while the CCI is bullish and MACD and stochastics are neutral in the 1-hour chart.
In the middle term, Sebastien Galy, Senior FX Strategist at Societe Generale, states that the euro may be replacing the JPY as funding currency, and it could be creating a short covering that boosts EUR. Running his models, he finds that 1.3085 corresponds to the 80% quantile (20% chance the market is more optimistic on EUR), giving the market a natural target, before grinding lower. He writes, "The model is based on a 2 year swap spread and the spread between 2Y Spanish Bonds (OBL) with German Bunds."
Taking the fundamental view, there are a lot of issues pressuring the euro to the down side. Along with the unresolved Italian election and Cypriot situation, now Portugal is taking the scene with its non-backing bailout. So the longer-term bias remains neutral for the cross, and the pair may struggle to regain its March 25 peak of 1.3050 needed to fuel its rally.
The Day Ahead:
Moving forward to Tuesday's docket, Germany, the UK and France will release their trade balance figures ahead of Italian Wage Inflation and Greek CPI. Across the pond, speeches by the Fed's Lacker and Lockhart are due, as the U.S. docket will be empty of relevant events.