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Euro on autopilot ahead of ECB

FXstreet.com (Barcelona) - The sentiment around the shared currency remains subdued on Wednesday, with the EUR/USD posting meagre gains around 1.2830/35. The next big event for the euro area would be the ECM monthly gathering, due tomorrow. Although market participants have practically ruled out any changes in the central bank’s monetary policy, they expect President Draghi to acknowledge the recent events in Cyprus and to remark the ‘unique’ case of the island, as well as the late worrisome data from the euro bloc.

… What’s beyond 1.2880/90?

The upside momentum for the euro continues to be capped by the relevant area of 1.2880/90, home of the key 200-day moving average. Furthermore, the lack of significant triggers is hampering any attempt of further gains, coupled with an uncomfortable (although real) feeling that the recovery in the euro area would face stronger headwinds than previously though.

Markets are dangerously calm against the worrisome backdrop in Italy. It is worth noting that Rome is still looking for somebody to step in and quell the dominating uncertainties, as quarrels in the triad comprised of Bersani, Berlusconi and Grillo has proven more than unable to spark hopes of an imminent government.

The Cypriot front has passed ignored in the last couple of sessions, but of course it does not mean that the effervescence of the situation is somehow alleviated, remaining an open wound in the investors’ confidence. There is still a lot to be done in the island, but as usual, local officials, EU politicians and ‘think-tanks’ are delaying their responses. In the meantime, depositors - among thousands others - are extending the suffering.

There would be plenty of things the ECB could say – and do – but apparently there is no room for surprises tomorrow. “However, this backdrop is still not gloomy enough to trigger a rate cut from the ECB this week”, noted Analyst Kit Juckes at Societe Generale, in clear accordance with the opinions of vast other FX analysts.

Technically speaking, the cross is now eroding the 2-month downtrend set from February highs and is threatening a break above it. In such a scenario, the interim resistance would be at 1.2880/90 (200-day moving average and 50% Fibonacci retracement of the July’12-February’13 upside) ahead of the psychological mark of 1.3000 and then 1.3077 (38.2% retracement).
On the flip side, the first stop south emerges at 1.2750 (2013 lows March 27th), en route to 1.2660/85, where converge the 61.8% retracement and November lows.

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