EUR/USD tests 1.3100 and closes at 1.3075 (San Francisco) - The euro climbed to 1.3096, fresh 1-week high, versus the dollar as kneejerk reaction to the Fed decision to add $45 bln a month in US Treasuries purchases and continue to buy $40 bln of month of mortgage backed securities. The Fed also set an unemployment target as interest rates will remain exceptionally low (at 0-1/4%) as long as the jobless rate stays above 6.5%.

The EUR/USD is trading right now at 1.3075, 0.53% gains from opening price action. The pair could face the next resistance at 1.3098 (high Dec.12) followed by 1.3127 (high Dec.5) and finally 1.3129 (high Oct.18). On the flip side, a breach of 1.3030 (hourly support) would expose 1.2996 (low Dec.12) en route to 1.2930 (low Dec.11).

"The announcement has allowed the EURUSD to vault higher through 1.3050 resistance, en route towards 1.3100," points Richard Lee, analyst. "A subsequent break above the 1.3100 would open scope for an advance on the 1.3171 September 17th swing high. Any near term correction would be held at bay by the 1.3052 short term fib support."

On the wider chart

While this week we noted that City Index Chief Global Strategist Ashraf Laidi expected the "EURUSD to rebound towards 1.32, followed by $1.33-34 nearing December." And even suggesting that a H&S formation makes the $1.38-40 as viable target in by end of Q1 2013." Today we commented that the Scotiabank sees "EUR to trend lower in 2013, expecting it to close at 1.25."

Camilla Sutton, Chief Currency Strategist at Scotiabank, remarks both the FOMC and the EU Summit meetings have the potential to weight on the cross. “Beyond the all important FOMC meeting on Wednesday, the end of week EU leaders summit will be important." As the "focus will be on negotiations over the banking union."

The Day ahead

Believe it or not, there’s been some volatility in the Swiss franc for the last two months. Negative rates in Switzerland banks and another non-convencional measures in the SNB have put the Swiss Franc in a volatile position, "especially above the franc ceiling of 1.2000," we said Richard Lee.

"This is a good thing for EURCHF bulls as Swiss franc weakness is still likely to persist ahead of the 1.2000 figure on protection from the SNB," states Lee. "The notion is being supported by the technical fact that the EURCHF violated the 1.2022 range resistance barrier that had remained intact for the better half of the year. Further upside extension is likely in the pair, on a break of the 1.2183 September swing high – placing sights on a potential test of 1.2243."