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Monday, February 12, 2007

EUR/USD: Modest Rallies; Market in Sell-Strength Mode

EUR/USD managed a rally into the high 1.2960s before easing back to the mid1.2950s. The market remains focused on key resistance levels in the US dollarindex near-term after brushing up against important resistance earlier in the session.

A sustained break of 85.16 is seen leading to further US strength across the board. As always, dealers remain reluctant to sell EUR/USD too aggressively below the 1.2940/50 area owing to near-constant central bank demand for reserve diversification.

A break and close below the 100-day average at 1.2917 today could prompt central banks to pull in their horns and wait for better buying levels ahead. Until then, most will be content to trade ranges. EUR/USD trades at 1.2957.

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