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Forex: EUR/USD tests 1.3200; Seems there is room for further gains

FXstreet.com (San Francisco) - The Euro advanced 175 pips against the Dollar throughout the European and American session from 1.3025 low to break above the 1.3150 and reach highest level since February 25 at 1.3200. The pair was unable to break above the 1.3200 but it remains around highs at 1.3175, closing in consolidation mode.

The single currency joined a new wave of risk appetite on the back of a bath of better than expected corporate earnings and housing data in the United States and forgetting bad news on German Confidence and FMI GDP revisions. Equities also rallied on Tuesday with Wall Street performing its best day in 7 weeks.

The past week, the EUR/USD was consolidating above 1.3020 and always below 1.3140 but today the pair had enough punch to break above the range. "What was interesting about the move was the lack of specific catalyst," comments BK Asset Management's analyst Kathy Lien. "The improvement in risk appetite even helped the euro shrug off the news that German investor confidence deteriorated significantly."

Lien believe that "it should be no surprise that 1.3150 is a key level in the EUR/USD and when it was finally broken, the currency pair jumped above 1.3180 in a matter of minutes" The BK's analyst believes that if Wall Street jumps to new highs, "the EUR/USD could find its way to 1.33."

As for the short term and trading 1.10% above Tuesday's opening price, the pair is slightly bullish according to the FXstreet.com trend index. Indicators such as MACD, Momentum and CCI are pointing north while the Stochastic is bearish in the 1-hour chart.

On the upside, the 1.3200 level stands as immediate resistance for the EUR/USD, followed by 1.3220 (50% fib retracement of the Feb-April decline) and 1.3245 (Feb 22 high), while on the downside, supports could now be found at 1.3115 (former resistance), 1.3080 (100-hour SMA) and 1.3030 (intraday lows/200-hour SMA).

The wider Picture

In the 1-day bigger chart indicators are bullish too. But UBS believes the pair will be pressured on data and German confidence . UBS still expects "EURUSD to top out soon. In particular, the weak commodity prices should eventually support the USD". The bank sees EUR/USD to close the Q2 at 1.28, the Q3 at 1.25 and the year at 1.20 in a clear down trend.

Scotiabank agrees with UBS as Strategist Camilla Sutton as she states that the euro would find support in the near term by the ECB inaction and the ongoing QE programme by the Fed. “However over the medium term, the combination of weak growth, low confidence, limited progress on the banking union and structural reforms should all weigh on the currency. We hold a year‐end target of 1.25”, assessed Sutton.

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