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Euro bulls warming up

FXstreet.com (Barcelona) - Renewed optimism surrounding the shared currency plus some profit taking in the recent USD rally have drifted EUR/USD from the area of 1.2820 on Monday to the current highs in the vicinity of 1.2840/45, as Bernanke’s testimony and the FOMC minutes area looming.

… It’s all about the dollar

The rhetoric that pushed the greenback to multi-months highs – that is, the likeliness of the Fed tapering the current QE programme – is the same that will be put to the test today, after Chief Bernanke finishes its testimony and surrender himself to the cross-fire of the Q&A session. The fireworks are thus guaranteed.

The scenarios contemplate different outcomes:

Bernanke pouring cold water over the FX community expectations regarding an anticipated exit or scaling back of the monthly asset purchases. This could help him to find common ground with recent speeches by well-known Fed doves. And looks like being the most likely situation, surely triggering a sell-off in the USD soon after. Reinforcing this position, the incipient recovery in the US economy saw its pace dented recently, and might prompt Bernanke to emphasize that any modification of the current QE programme may be premature, as more data should then be needed.

The less likely outcome, either Bernanke staying on the sidelines or going along with the current would be USD-friendly vibe, hence extending the recent rally in the greenback. However, there was no hint at the occurrence of such scenario, neither by Bernanke himself nor any of the Fed’s members.

The US economy is growing. True, maybe at a slower pace now, but growing after all, unlike its European and Japanese peers. However, this could yet be not enough to intervene in the ongoing flow of stimulus, as Bernanke would surely demonstrate today.

In the technical sphere, the pair broke the downtrend set from May highs around 1.3200, and keeps pushing higher.

The initial barrier up awaits in the area of 1.2955/75, where converge the April lows, the 23.6% Fibonacci retracement of the Fe-Apr slide and the base of the cloud. Further buying pressure should face the 55-day moving average at 1.2990 followed by the psychological mark at 1.3000.

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