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Forex: EUR/USD closes flat on the day after sell off; Heading to 1.3000?

After falling to 1.3015 and rising to 1.3120, the EUR/USD is closing flat on the day at 1.3060. The pair has been trading in consolidation mode after Monday's 270 pips collapse on the back of uncertainty outcome in the Italian elections. In addition, better-than-expected data in the US and Ben Bernanke comments on stimulus have fueled USD strengthening.

The US dollar has continued to advance versus most competitors on Tuesday. The EUR/USD, GBP/USD and the USD/JPY have been trading in consolidation mode while the USD/CAD rocketed to highest since June 2012 at 1.0300 and the AUD/USD weakening to 4-month lows at 1.0200.

As for the short term, the EUR/USD is trading at 1.3060 after recovering from 8-week low at 1.3017. The next support is at 1.3018 (low Jan.7) ahead of 1.2998 (low Jan.4) and finally 1.2996 (low Dec.12). On the flip side, a break out of 1.3123 (MA100d) would aim for 1.3319 (high Feb.25) and then 1.3389 (MA21d).

So, it's the EUR/USD heading toward 1.3000? Technically speaking, the shared currency holds a bearish tone from hourly to daily charts. With the EUR/USD trading below the 100-hour SMA and the 1.3100 psychological level, there is scope for further losses toward 1.2997 (2013 low). Christopher Vecchio, DailyFX's analyst believes that below the 1.2995, the EUR/USD has way to 1.2660.

In the analyst's view, continued political uncertainty could force Italy into accepting the terms of the OMT, in order to calm investors. "This may have limited downside in Euro-based pairs now; but don't be surprised by further downside over the coming weeks", Vecchio says. "Although the EURUSD is near oversold conditions, we note that momentum amid political distress tends to supersede stretched technical indicators. If 1.2995 breaks, a move into 1.2875 and 1.2660 shouldn't be ruled out by the end of 1Q'13."

But FXWW's analyst Sean Lee is not sure about the downside as he comments that the break in EUR/USD below Fibo support at 1.3060 "hasn’t really been confirmed" so he is "cautious in declaring that support has broken." Lee pointed in a recent report that the heavy month-end flows have started to eased after, specially after some wild panic yesterday. Lee comments that the

In this line, according to the RBS Technical Strategist William Moore the 1.3040 support has bolstered the EUR/USD. “The basing of the market at 1.3040 leads us to think that we’ll see the market drift up to 1.3198 possibly even to 1.3269 before we meet any meaningful resistance again.” In the short-term however, risk surrounding Italy has to weigh on the pair in conjunction with the fundamentals.

The day ahead:

Tomorrow’s docket will kick in with German Import Prices, followed by a gauge of Consumer Confidence in France and Business Climate in Italy, ahead of EMU’s Consumer Confidence. A speech by ECB’s Mario Draghi would close the calendar, grabbing investors’ attention after the events in Italy.

The United Kingdom will publish its Q4 GDP and the US will have Durable Goods orders, Pendimg home sales and the second day of the Bernanke speech.

- German GfK Consumer Confidence (Feb 27 07:00 GMT)
- UK Q4 GDP (Feb 27 09:30 GMT)
- US Durable Goods Orders (Feb 27 13:30 GMT)
- Fed's Bernanke testimony (Feb 27 15:00 GMT)
- US Pending Home Sales (Feb 27 15:00 GMT)

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