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Forex: EUR/USD fights the 1.3050/60; Are the bears opening the door?

The EUR/USD is completing the round trip from 1.30 lows to test the 1.3160 area and retrace to the 1.3050/60 key Fibo support. The risk-off mode in currencies is prevailing in the global markets, keeping the euro demand subdued and despite equities were rallying, the EUR/USD seems to be decoupled from its historical correlation.

The euro failed to extend its recovery above the strong 1.3160 resistance area and pulled back and currently is trading at 1.3055, around 80 pips or 0.40% down from Thursday's opening. As for the short term, the pair could face next support at 1.3045 (Ichimoku cloud base) would aim for 1.3041 (low Feb.27) and finally 1.3018 (low Feb.26).
On the upside, resistance levels align at 1.3163 (high Feb.28) ahead of 1.3170 (hourly cloud top) and then the psychological level at 1.3200

In light of the recent weakness, Christopher Vecchio, Currency Analyst at DailyFX, commented, “We now must focus on what potential positives there might be to drive the Euro. True, the European Central Bank continues to rein in liquidity via its LTRO repayments, but general consensus is emerging that credit conditions are starting to get tight, which could precipitate a rate cut. But, the big driver could actually be the US budget sequester”.

The sequester's starts Friday March 1st and there is not hints that the Republicans and Democrats will reach an agreement. In this line, the IFM said they will revise down the US growth outlook if sequester reaches its March 1st deadline and the government must cut spending lower.

Overall, the USD was the winner of the session, the GBP/USD is trading in range between 1.5150 and 1.5200, the USD/JPY popped in the late American session to 92.80. The AUD/USD collapsed to the 1.0210 area and the USD/CAD jumped above 1.0300.

Just testing the 1.3050/60 fibo support

The recovery of the euro against the dollar stalled at the 1.3160 area on Thursday where a congestion zone converges with the 50% retracement of this week's decline between 1.3298/1.3017. Failure to break above this technical level, put the EUR/USD back under pressure during the New York session.

FXWW's analyst Sean Lee remarked the importance of the 1.3060 level in a recent report, Lee was not sure about the downside, as he commented that the break in EUR/USD below Fibo support at 1.3060 "hasn't really been confirmed." The level supported on Tuesday and the EUR/USD traded higher on Wednesday, but currently it's back to the fibo support again.

According to the Bank of Tokyo Mitsubishi UFJ analysts, the EUR/USD looks bearish in the short term. The BTMU points that the Italian elections are looming the Euro. "They write, “Protracted negotiations will leave the euro vulnerable for longer to the downside although fresh elections are unlikely to be called in the week ahead."

The BTMU analysts "expect EUR/USD will find strong support around the 1.30-level helping to limit scope for further downside in the week ahead. The pair has already fallen sharply during February from an intra-day high of 1.3711." Beside that, the US sequester may weught upon the US dollar.

Friday, March 1st.

Moving forward to Friday’s calendar, A battery of PMI data in China, Europe and US will add pressure to the euro. In the United States, ISM manufacturing idnex, construction spending and the Michigan consumer sentiment will take the investors attention. Personal income and personal spending will put the point of salt to the session in the first sequester day along the Canadian GDP data.

- German Retail Sales (March 01 07:00 GMT)

- German Manufacturing PMI (March 01 08:53)

- US Personal spending (March 01 13:30 GMT)

- Canada Q4 GDP (March 01 13:30 GMT)

- Michigan Consumer Sentiment (March 01 14:55)

- ISM Manufacturing PMI (March 01 15:00 GMT)

Forex Flash: Neither QE nor sequester USD main driver - BBH

The sequester could be considered a bit of a farce, says Marc Chandler, Global Head of Currency Strategy at BBH, "in the sense that it was never intended to be enacted."
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