Expect EUR/USD to Remain Rangebound After Wide Gains

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The EUR continues it’s rally as we reach the mid-week point, staying comfortably above the 1.3100 level and looking as if it will take a run at the next resistance level of 1.3170 in the very near term.  Besides strengthening against the USD, the EUR has also firmed against the CHF and JPY as well.

The problems for the USD continue as lawmakers in Washington continue to argue over how to resolve the fiscal cliff issue as the days tick away and we get closer to the December 31 deadline.

The latest plan unveiled by the Republicans that included raising the federal debt ceiling will not pass in Congress according to White House Chief of Staff William Daley.  While most believe some sort of deal will be reached by the deadline, traders are turning away from the USD for the time being.

As we reach the mid-week point, traders will begin to focus on the release of US Non-Farm payroll data this coming Friday.  The ADP and ISM releases today (see how to trade the ISM with USD/JPY) should grab traders’ attention and give some clue as to Friday’s number.  The number is expected to be somewhat distorted by the effects of Hurricane Sandy, as well as the ongoing Fiscal Cliff concerns.  It will be interesting to see the reaction by the markets as well as comments from FED officials if the number provides a sharp upward or downward surprise.  Early predictions for the NFP number show a rise of 91,000 jobs.   Add to this the fact that the FED meets the following week and Friday could be an interesting day.  But we will get to that as we get closer to Friday.  For today, EUR is expected to continue pushing higher.  A break through 1.3180 could see a run towards 1.3220.  Adding to the EUR euphoria was good economic news from the Eurozone.  German November PMI rose to 49.7, from 48.4 in October.  Market consensus called for 48.

The Canadian Dollar strengthened overnight as traders bought the currency after the Bank of Canada kept rates unchanged at 1.00%, which was widely expected.  As usual, the accompanying statement, which traders view closely, stated “some modest withdrawal of monetary policy stimulus will likely be required” to meet the 2% inflation target.  This tightening bias is helping boost the CAD.  The report also noted the fiscal cliff uncertainty is hurting the US economy, and also mentioned that the Chinese economy appears to be strengthening.  The USD/CAD has tested support at .9910, before slightly bouncing.  A test of the .9880 support level cannot be ruled out.  Resistance appears at .9940.

More: Forex Analysis: USD/CAD Stalls Above Key Confluence of Support

In other currency news, the EUR/CHF moved higher on rumors that the Swiss National Bank was considering setting negative interest rates.  Credit Suisse adding some validity to this as it announced yesterday it would begin charging interest to other banks for holding their Franc deposits.  The cross has moved as 1.2150 as traders are taking this action quite seriously.

As for today, expect the fiscal cliff negotiations in Washington to dominate the news.  The clock is ticking with only 26 days till the end of the year.  At some point these talks will get more intense, but it seems both sides remain intent on blaming the other side for the delays.  Expect the EUR to remain rangebound with 1.3080 support and 1.3140 resistance to hold.

Lastly, on the lighter side, as we approach the holidays, if you are still looking for that special gift for that certain someone, Pizza Hut Canada is releasing a perfume.  The scent is expected to smell like a box of pizza being opened.  So, get on line and buy that “Eau de dough”.

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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