EUR/USD: 1.3005The Euro headed back to 1.3000 after the German ZEW survey of investor sentiment that unexpectedly improved sharply. A solid Spanish bond auction that met good demand also helped the Euro and, once the US opened, investors sold the Dollar ahead of the FOMC meeting, later today, where there is a widespread feeling that the Fed will announce outright purchases of Treasury assets of US$45B per month. This would maintain the current level of liquidity, required after the expiration of the Operation Twist on 31 Dec, which would mean that in addition to the purchase of $40B per month, the Fed will boost its balance sheet by US $85B per month going into 2013.
Elsewhere, positive progress on the "fiscal cliff" negotiations was reported by the WSJ although there is little comment from those involved, but it helped to improve risk sentiment and assisted the Euro back to the top of its recent range.
From a technical point of view we have now taken out minor resistance at 1.2970 and 1.3000, but at this point we still remain below 1.3030 (61.8% of 1.3126/1.2875) and 1.3066 (76.4%).The positive momentum on the 4 hour charts suggest that this is a possibility, and if seen would suggest a probe towards 1.3120. For this to occur, the Fed will need to act aggressively at the FOMC as the Euro has plenty of negatives of its own, which could halt the upside momentum and keep it within the range.
The downside would see a return to the session low at around 1.2928, and below this to Fridays 1.2875 low, although this looks the less likely scenario for the next 24 hours. Below this the rising trend support is currently at 1.2850 and which should be strong, being backed up by the 61.8% Fibo level of the move from 1.2660/1.3126, at 1.2840.
I would not expect too much before the FOMC announcement, although there is some EU data that may provide some minor volatility, and in the short term it looks as though dips will provide an opportunity for those looking for another leg higher towards 1.31. Above this, - should we see it -I would tend to lighten up any long positions and would not be surprised to see a move back towards 1.29/1.30
Economic data highlights will include:
W: German Consumer Price Index (YoY) (Dec), EU Industrial Production (YoY) (Oct), FOMC – Fed Interest Rate Decision/ Statement.
