Following the 1.3400 test, early Asia, the EUR/USD lost momentum and weighed by disappointing euro zone data, pulled away from highs. However, with the downside pretty much restrained by strong buying interest, the shared currency entered in a consolidation phase.
For the short term, next resistance is at 1.3487 (2012 high, Feb 24th) ahead of 1.3491 (50% of 2011-2012 decline) en route to 1.3550 (high, Dec 2nd 2011). On the opposite side, a drop beyond 1.3336 (low, Jan 14th) would target 1.3249 (low, Jan 11th) and then 1.3192 (21 DMA).
According to FXstreet.com analyst Richard Lee, there are three things bolstering the EUR/USD higher: The ECB's rate cut being no longer an option, the EUR/CHF pullback, and the 1.3300 technical violation last week. "Now, with pivotal resistance at 1.3300 broken to the upside, the next resistance test for EURUSD will be1.3511, 50% fib resistance barrier," affirms Lee.
TD Securities' analysts Shaun Osborne Greg Moore agree with Lee. The "1.33 should now be a key pivot point, and we expect dips should be rather shallow now on the trek toward 1.35/36 in the coming weeks." They also noted that the EUR/CHF should benefit from this EUR/USD strength, already reaching a new high since December 2011.
"Although today’s market activity is consolidative in nature, there are no immediate events that look likely to halt last week’s more favorable market sentiment and foreign currency gains, and our outlook is for some further slippage in the U.S. dollar over the near-term", said Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.
In the same line, UBS analyst team considers that the EUR/USD may overshoot long-term targets in the near term. EUR/USD at 1.3350/70 is close to the UBS year-end forecast of 1.34 while EUR/CHF and EUR/JPY are also close to the 12 month forecasts (1.23 and 121). "Nevertheless, the exchange rates may well overshoot our long-term targets in the near term, as the need to cover short EUR positions is high", says the UBS team.
The day ahead
Tuesday's docket in the euro area will kick in with the German inflation figures, followed by an annualized measure of the GDP in the first economy. Italian CPI will follow, ahead of a key 12m and 18m auction of Spanish Letras. EMU trade balance figures will close the data front.
Investors must pay attention to UK's CPI, PPI and retail price index figures, along BoE’s inflation report. In the US, the schedule is quite busy, with Retail Sales being the event of the day, and followed by the release of NY Empire State Manufacturing Index, business inventories and the PPI.
However, from now onward, the debt ceiling debate will capture market´s attention as the fiscal cliff did in the past weeks. Especially since Ben Bernanke and President Obama speeches, and the Geithner's letter to Congress saying that even a brief default would be damaging, and he expects debt ceiling to be hit between February and March.