FXstreet.com (Córdoba) - The dollar continues to trade in a
choppy way as movements are dominated by US budget talks. The USD
strengthened initially yesterday on downbeat comments from Senate
Leader Harry Reid, before recovering on news that the House would
reconvene on Sunday.
Against this backdrop, the euro and the pound broke below important
supports on Friday only to bounce back above 1.3200 and 1.6100
respectively, while stocks remain under pressure in Wall Street.
Volatile trading is likely to persist amid low liquidity ahead of
the year-end and driven by headlines.
Euro trims losses but lacks direction
The EUR/USD fell to a fresh 1-week low before bouncing and erasing
losses at the beginning of the NY session. The pair settled above
the 1.3200 mark and it was last at the 1.3225 zone, slightly down
on the day.
However, the pair lacks strength to accelerate either side of the
board. A break below the 1.3165/55 area could send the pair towards
1.3100. On the other hand, a clear break above 1.3280 would open
the doors for a retest of its Dec 20 high of 1.3307, targeting the
1.3385 area then.
"The markets are certainly in holiday mood but the price action
suggests that the EUR may be struggling from a technical point of
view", says the TD Securities. "EUR/USD is poised to close out the
week unchanged and well off the inter-week highs for the second
week running even with the underlying trend higher still strongly
entrenched. That might mean a couple of big figures' worth of
corrective price action in store for EUR/USD in the next 2-4
Meanwhile in the US
Politicians continue to struggle as the deadline looms for reaching
a deal on the US budget to avert massive tax increases and spending
cuts which could drag the economy into recession. Today president
Obama will meet with the minority leaders of the Senate and the
House. "Any signs of compromise would be a clear boost for equity
markets and most foreign currencies, but they would likely come
under further pressure if budget talks remain stalled", says Nick
Bennenbroek, Head of Currency Strategy, Wells Fargo Bank.
"Currency trading in the coming days will clearly be dominated U.S.
budget headlines - we expect choppy trading, with the possibility
of foreign currency weakness before year-end followed by foreign
currency strength early in the New Year", Bennenbroek said.