Forex: EUR/USD Closes Above 1.3200 - Free Way To 1.3500?

Includes: FXE, UDN, UUP
by: FXstreet

After leaving the 1.3200 mark behind and rising 0.45%, the EUR/USD closed the day at 1.3225 in a choppy American session with European and American leaders taking the microphones. The EUR/USD is trading at fresh seven-month highs amid signs of progress in U.S. "fiscal cliff" talks.

President Barack Obama and House Speaker Boehner have made further steps to close their differences in the fiscal cliff negotiations, and as analyst Richard Lee says, "it seems that the impasse is breaking down and Democratic leaders may be willing to deal with less than two weeks to go before the end of the year."

Stocks soared after latest market talks, and so does EUR/USD that trades above 1.3220 already with a strong upward momentum. As for the short term and with not much in the middle, "the rally may extend now towards next strong resistance around 1.3280, past the April 30th high," comments Valeria Bednarik, Chief analyst. "A daily close above will likely open doors for another 100 pips gain, targeting the 1.3385 area, March highs."

Bendarik points that "pullbacks will be seen as buying opportunities, and a reversal is now out of the picture, as the price needs to fall at least below 1.2970 to start considering a top has been made." Short-term supports now come at the 1.3210 and 1.3180 price zone.

The Next Frontier In The EUR/USD

Now many experts and banks are saying the bullish moment is well supported in the EUR/USD, but some days ago, news pointed the possibility to the EUR/USd to extend bullish momentum to 1.3500 and event 1.3800.

City Index's analyst Ashraf Laidi was one of the initial bullish experts on the unique currency, as he expects the "EUR/USD to rebound towards 1.32, followed by $1.33-34 nearing the end of December." Laidi states that "the ensuing reverse Head and Shoulder formation appearing in EUR/USD is a classic (and rare) bullish formation, with clear delineation of: i) required preceding sell-off; ii) isolated low, creating a left shoulder; iii) a renewed sell-off to create a bottom or a head; iv) subsequent peak, creating a right shoulder; and v) a straight neckline coinciding with trendline resistance."

"The theoretical target interpolated from the reverse H&S suggests $1.38-40 is viable in by end of Q1 2013," adds Laidi.

In the same line, the UBS team believes that the EUR/USD bullish trend will remain stable. "We would interpret the move as a nice year-end rally, carrying the exchange rate beyond the resistance around 1.32," they comment. "We expect the trend to remain stable and short-term investors could even try to aim for 1.34."

The TD Securities team comments that "the daily close above the neckline of the head and shoulders continuation brings a target in the upper 1.35 area, while the weekly close implies a target closer to 1.43/44 in the months ahead."

On the other side, Goldman Sachs expects the euro to decline before recovery in 2013. They write: "Our long-term views are driven by our structural bearish stance on the USD. The weak balance of payments of the U.S. vs. the stronger BBoP trend for the euro area still imply a weak USD and a stronger EUR." In the near term, however, they see the signal from the relative euro area BboP strength attenuated by a range of factors. Following the announcement of the ECB´s OMT program in September, there has been a strong rally in the EUR due to a perceived reduction in euro area tail risk.

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