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As hinted earlier on Monday, the overwhelming bullish views towards the U.S. dollar played its trick, allowing traders to more confidently get positioned short the USD in a market that has been overly long the American currency as of late, bringing the EUR/USD exchange rate near yearly lows at 1.2750.

It is clear by now, especially after the reassuring +195K number, that conviction on an early QE exit strategy by the Federal Reserve is gaining addicts, as shows the strong broad-based buying interest the USD continues to enjoy as opposed to its moderate depreciation when it declines, all preemptive of a market screaming out loud a bullish cycle is developing.

But the questions remain: How long can the USD sustain its appeal? Will the Fed deliver even if U.S. Treasury yields get out of control? How much 'tapering' has been priced in at this stage?

After the significance of the positive job numbers in the U.S., where further conviction to support the Fed tapering case was accomplished, traders are now waiting for the release of the FOMC latest minutes along with a speech by Bernanke in Boston, both on Wednesday, to learn more about the current stance by the Fed.

On the other side of the pond, Draghi's Monday speech highlighted the prolonged reality Europe is set to live with, saying that recession will be the main systemic risk to the EU, also adding that rates will remain at record lows for an extended period and that forward guidance indicates ECB has easing bias. Amid this ultra-dovish posture from the ECB, the Euro is set to suffer.

Even though the fortunes of the EUR and the USD seem to indicate that the exchange rate will continue to depreciate, technically speaking, Jim Langlands, Founder at FXCharts, notes that the immediate outlook for the pair is still cautiously constructive to extend an upside correction.

According to Langlands: "It currently sits just about at the highs and the short term indicators look as though there is room for a further squeeze, possibly to the top of the channel that appears to be building, where the resistance is currently at 1.2940, previously also 76.4% Fibo support of the 1.3415/1.2805. Above this is further Fibo resistance at 1.2950 (23.6% of 1.3415/1.2810) so breaking above we could progress on towards 1.3000." On the downside, Langlands underscores the support in the 1.2800 area as very strong, "looks likely to stay intact, at least for the coming sessions" Langlands said.

Valeria Bednarik, Chief Analyst at FXstreet.com partly agrees with Langlands' constructive view, saying that "movements up to 1.2925, 78.6% retracement of its latest bullish run, should be seen as corrective, with a break above opening doors for an extension towards 1.2960/1.3000 over the upcoming days."

Even if it does not come into close contact today, the key level all market participants are watching is 1.2750 and its surroundings. According to Nial O'Connor, Currency Strategist at JP Morgan Securities, a break lower "would call for a minimum decline to 1.2453/36 (C = A/76.4 %) which can be seen as the ultimate Make-or-Break-point for the EUR on big scale."

Source: EUR/USD Aiming At 2nd Daily Gain