Stronger-than-expected US GDP, Philly Fed and housing data also underpinned stocks that opened positively in Wall Street and offset concerns of the lack of progress in 'fiscal cliff' negotiations, which remains as the main focus these days.
"With respect to the U.S. budget talks, today we should see the House vote on proposal to extend existing income tax rates for households earning less than $1 million, and raise rates for households above that level", says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank. "It's not certain the proposal will pass in the House and, in any case, it is virtually assured to be defeated in the Senate. It would appear that politicians need to move past today’s vote however for substantive progress on the budget talks to resume".
Euro unable to consolidate above 1.3300
As investors continue to focus on US budget talks, European issues have been relegated to the background. Technically speaking, despite recent rejection from above 1.3300, the shared currency holds a positive tone versus the dollar in short-term charts. A break above 1.3307 (Dec 19 high) would open the doors for a rally toward 1.3385 as next target. However, repeated failure to break decisively above 1.3307 could put EUR/USD under pressure and a correction toward 1.3120 could not be dismissed.
According to the TD Securities team, the EUR is looking better bid ahead despite yesterday's toppish looking price action, but it would take a push above the 1.3306 high today to confirm the constructive trend. "But markets look to be entering consolidation mode as the holiday season approaches. Of course new developments on the fiscal cliff front could uproot these trends".
Meanwhile the Wells Fargo team notes that at this point the dollar remains on the defensive while thin trading conditions are exacerbating moves, "though in the bigger picture we still view recent strength in the euro and the pound as selling opportunities". Analysts at UBS hold a positive bias for EUR/USD and see Wednesday's setback as a correction to unwind the over-extended upside conditions.