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Forex: Euro benefits as USD index hits a wall

FXstreet.com (Barcelona) - The Euro starts the week holding its ground around the psychological 1.30 level against a weak US Dollar, still convalescent after being faced with a double negative combo of news last Friday.

The disappointing US NFP data, which suggests there is still QE ammunition by the Fed for quite some time, was only part of the equation that explains the poor USD performance. the second more overlooked element was the stack of big sell orders the USD index had to face at the 83.50 junction, leading to magnify its losses before the Friday's New York closing bell.

Looking at the USD index, Marc Chandler, Global Head of Currency Strategy at BBH, sees "a break now of the 81.70-82.00 band would suggest a deeper correction has begun that could carry it to around 80.70, initially."

As is well known, the Dollar Index is heavily weighted towards the euro, so it is no wonder that technically, "the euro looks constructive, with next upside target near $1.3115," Marc says.

However, the Euro, while technically better positioned capitalize on ongoing USD soft tone, it will be facing some fundamental problems of its own, likely to get in the way of the currency, thus posing some challenges to enjoy a smooth appreciation.

One of the most pressing issues facing the Euro now is Portugal, following the country's constitutional court decision last Friday to reject some austerity measures from the 2013 budget.

Over the weekend, Portugal's Prime Minister Pedro Passos Coelho said on Sunday the government will implement further cuts to compensate the unexpected budgetary setback, so that it can meet targets set by international lenders.

Moreover, the EU's economic affairs chief Olli Rehn said that despite Cyprus is not any sort of test for other bigger countries, large bank depositors may be affected in the future under the new European Union law should a bank fail.

According to Valeria Bednarik, chief analyst at FXstreet.com, from a fundametal standpoint, "there seems to be nothing that builds up confidence in the common currency."

Some analysts like Marc Chandler, mentioned above, expect EUR/USD to hit 1.3115 in the near future, although the context in which the pair is developing its upleg, according to Valeria, "looks more a short covering than Euro self strength", who also agrees that the rally may extend until 1.3110, a key resistance.

Short term, adding the view of another renowned FX expert like Chris Capre, founder at 2ndSkies, "the Euro momentum is up, but I still hold a medium term bearish bias as I think this rally will hit a wall and will find more sellers waiting above."

Chris sees "the first two key levels to rejoin the medium term downtrend would be 1.3107 and 1.3260, with intraday bulls can look towards the daily 20ema for potential longs, targeting those resistance levels above."

Forex Flash: EUR/USD next upside target near 1.3115 - BBH

The US Dollar Index reversed lower on Friday, after being faced with weekly supply area at 83.50, which was rejected once tested to the pip.
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