EURUSD (week: 23-27 Jan. 2006)

Last week, EURUSD went down to test the 1.2040 support, bouncing from there and ending the session near the week highs at 1.2130. Renewed failure to break below 1.20 further strengthened the bullish picture for the pair, a test above at 1.2180 becoming imminent.

For this week, we expect EURUSD to break the 1.20 - 1.22 range of the last two weeks, and reach higher towards 1.2350 (75% retracement of the 1.2580 - 1.1640 move). The 50% retracement level of the same wave stands around 1.2120, which now offers minor support for the pair. A possible break below 1.21 will bring a new test at 1.2040 into focus. On the upside, once 1.2200 breaks, the level will probably stand as reliable support for EUR buying during the entire week. Interest rate differential still favors the dollar, but the market is likely to move one step ahead, expecting the Fed tightening campaign to come to an end early this spring. The pair already went above the upper BB on the hourly studies, which for now supports the same scenario of further movement in favor of the EUR.

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