EUR/USD Dec 19 â€“ Higher on Fiscal Cliff Optimism, Strong

EUR/USDÂ has broken out from the rangebound trading which characterized most of this week,Â as theÂ pair has climbed to levels last seen inÂ MayÂ and continues to trade in a tight range.Â The markets cheered Wednesdayâ€™s data out of Germany, as German Ifo Business Climate beat the forecast, posting its best reading since July. With Q4 behind us, market focus has shifted to the fiscal cliff, with intense negotiations continuing on Capitol Hill.Â Any announcements of progress (or lack of) could have a strong impact onÂ EUR/USD.Â Todayâ€™s highlight is US Building Permits, with the markets expecting little change in the December release.

EUR/USD Technical

Asian session: Euro/dollar moved higher, as the pair climbed to 1.3256, beforeÂ consolidating atÂ 1.3240. The pairÂ has moved higherÂ in the European session.
Current range: 1.3170 to 1.3290.

Further levels in both directions:Â Â

Below: 1.3170, 1.3130, 1.3110, 1.3030, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590 andÂ 1.25.
Above: 1.3290, 1.34, 1.3480 and 1.36.
1.3170 has strengthened in support as the pair has moved higher.
1.3290 is providing significant resistance on the upside.

Euro/dollarÂ higherÂ asÂ markets optimistic over fiscal cliffÂ â€“ click on the graph to enlarge.

EUR/USD Fundamentals

9:00 German Ifo Business Climate. Exp. 101.9 points. Actual 102.4 points.
9:00 Eurozone Current Account. Exp. +5.8B. Actual +3.9B.
13:30 US Building Permits. Exp. 0.88M.
13:30 US Housing Starts. Exp. 0.87M.
15:30 US Crude Oil Inventories. Exp. -0.9M.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

Markets optimistic over fiscal cliff:Â Although there are no dramatic breakthroughs to report on the fiscal cliff issue, the markets are cautiously optimistic that lawmakers on Capitol Hill will reach an agreement shortly.Â With polls indicatingÂ that a majority of AmericansÂ think that the Republicans need to be more flexible, the latter have softenedÂ their positions and their rhetoric, and are sounding more conciliatory.Â However, there is still a significant gap betweenÂ the sides as far as tax hikes and theÂ extent of spending cuts to Federal programs.Â With Q4 behind us, the markets are closely monitoring the progress in the talks.Â We could see EUR/USD improve if there is any progress, and retract if the voices out of Washington express pessimism.
Bailout funds delivered to Greece: After months of protracted negotiations between Athens and the troika, Greece finally received the next tranche of the bailout rescue package on Monday. The Greek finance ministry confirmed that it had received 34.3 billion euros in aid. The total amount of the bailout is about 49 billion euros, and the remaining funds will be delivered by March 2013, contingent upon Greece implementing further economic reforms. Under the agreement, Greece agreed to implement a buy-back scheme, in order to help reduce its debt. This required Greece to buy its own bonds at a deep discount. The bailout package is intended to help Greece regain its financial footing, and is certainly an important step forward as the Euro-zone deals with the crippling debt crisis.
Eurogroup agrees to expand ECB mandate: European finance ministers reached a deal in Brussels last week, whereby the ECB will become the single supervisor for the 200 largest banks in the Eurozone. The move aims to achieve closer financial integration and help protect the euro from future financial crises, which have rocked the Eurozone. Under the agreement, struggling banks would be able to receive emergency funds directly from the ESM. If all goes smoothly, the ECB will begin its new role as a â€œsuper bank commissionerâ€ by January 2014. There have also been discussions of widening the ECBâ€™s supervisory powers to cover EU banks which are not located in the Euro-zone.
Eurozone economies struggling: As we approach the end of 2012, the health of the economies of the major players in the zone does not look promising. Unemployment is rampant in Greece and Spain, and Italy and France are also experiencing high unemployment. With these major economies facing small or even negative growth, there may not be a lot to cheer about in the early part of 2013. Germany, the economic locomotive of Europe, is in much better shape, butÂ is sufferingÂ from slower growthÂ and higher unemployment. On the brighter side, there has been significant progress in the Greek debt crisis, as aid is again flowing to Athens. As well, a framework has been agreed upon concerning a greater supervisory role for the ECB, with the goal of minimizing the impact of future banking crises in the Euro-zone.
US dollar weaker: The Federal announcement to implement additional monetary easing resulted in a broad weakening of the US dollar, from which it has yet to recover. The euro, pound and Swiss franc have takenÂ full advantage, and have posted impressive gains in the past week.Â One exception has been the Japanese yen, which has lost ground following the election win of the Liberal Democratic Party, which has declared its intention toÂ activate further easing, which has led to the dollar pushing higher against yen.

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