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The EUR/USD closed on Tuesday its second positive session in row after bottoming at 1.2800 on May 17th. The pair was fueled by the Fed's Dudley and Bullard's speeches and the lack of comments about the Fed tapering bond buying. The EUR/USD rallied from 1.2840 to be capped at 200 hours MA at 1.2935.

Currently, the EUR/USD is trading around 1.2905, still up 0.2% on the day. The short term perspective is slightly bullish in the 1-hour chart according to the FXstreet.com trend index. Indicators such as MACD, CCI and Momentum are pointing to the north while the Stochastic is neutral.

So, what's next? FXstreet.com analyst Valeria Bednarik says that "it's all about central banks," pointing that the BoJ's decision and the BoE and Fed minutes will focus the market attention in the short term. " Bednarik points in a recent report that "many of the voting members, even the ones that opposed earlier this year, had suggested is time to start thinking on a possible end of QE. Market has been steadily pricing it in, buying the USD in advance."

But, what could the market expect from Bernanke? According to the FXBrieft analyst team: "exactly what you got today from Dudley: That policy could go either way depending on how the economy plays out." However, in the event that the Fed offers some hints on QE and/or exit strategies, Bednarik comments that "a change in wording, reinforcing the possibility of tapering QE will likely see greenback extending its advance across the board, while diminishing chances of an end for QE, will likely see the currency suffering a strong set back.

To buy or not to buy?

"I'm a dollar buyer. Still a dollar buyer," RBS's analyst David Simmonds commented in a recent report as he also stated: "In three words, keep buying Dollars." Simmonds also comments that he has "no arguments with EUR/USD lower either and have long forecast sub 1.20 levels for this year. EUR/USD could be the low-score-bore-draw that it's been for ages, either side of 1.30, for longer."

UBS Strategists, Gareth Berry and Geoffrey Yu agree with Simmonds on a technical perspective. UBS believes that any upside will be limited as bearish conditions persist. Resistance is at 1.2967 and 1.3020, while support is at 1.2797, a break below would expose 1.2746 ahead of the critical 1.2662.

On the other side, Marc Chandler, Global Head of Currency Strategy at BBH suspects that "Bernanke will recognize, as the FOMC statement did, that the economy is growing at a moderate pace and that decisions on the pace of asset purchases is a function of changes in employment and inflation… If this does in fact materialize, we suspect it would be supportive for U.S. Treasuries while weighing on the dollar."

However, the EUR/USD has found buyers around 1.2840, and as Bednarik says: "The pair will likely range in the 1.2840/1.2950 area ahead of the FED." Clarifications on QE status will decide the trend from then on.

Source: The EUR/USD Closes Above 1.2900; To Buy Or Not To Buy?