Outlook Favours EUR Going Forward, But Will US FOMC Minutes Scupper Further Rallies?

The Euro is under pressure versus the GBP and USD on Wednesday morning.

Sean Lee at FXWW points out that initial pressure on the Euro was initially sparked by corporate selling:  

"Two big German corporates noted sellers of EUR/USD in early European trade but real money funds seen buying dips."

Speculative Moves, Emerging Market Outflows Send Euro Higher

Emerging markets have recently witnessed fresh selling pressure ahead of the tapering of asset purchases over in the US.

As investors return cash to the Eurozone so the EUR is bid higher.

Leander Dreyer at Jyske Bank does however forecast a return to strength for the US Dollar today saying:

"EURUSD traded above 134.50 yesterday. No fundamental events prompted the movement; rather it was speculative movements
targeted at taking stops above 134.20. Over the evening/night, the cross-rate dropped back towards 134.

"It is crucial that today remains below 134.50 closing above this level (at 22.00) is most likely to change our short term view.

"Today's minutes from the recent FOMC meeting will be essential. If our expectations are met, USD should strengthen (signal about phasing out in September of USD 10bn distributed equally between government bonds and mortgage bonds)."

Short-Term Outlook for the Euro Dollar Exchange Rate

We have dealt with the outlook for the Euro Pound exchange rate already today, please see here.

But what of the outlook for the Euro Dollar?

According to Joshua Mahony at Alpari UK the outlook for the Euro has improved significantly following yesterday's positive price action:

"The euro has broken a key trend-line on the way to the key 1.34 handle against the US dollar in recent weeks. This is highly significant and points to inherent strength in the single currency going forward. However, the current price level is critical in understanding whether the price is set to move higher towards 1.37 or retrace towards 1.32.

"The weekly chart (click on right thumbnail) shows that up until this week, the pair traded within a symmetrical wedge formation. The break above this brings a significantly more bullish outlook for the pair where the ability to hold above the 200 day moving average and 1.34 handle is key to retaining a bullish outlook."

Luc Luyet at MIG Bank warns of significant resistance ahead:

"EUR/USD remains in a succession of higher lows with a significant support at 1.3190 (02/08/2013 low). The strong resistance at 1.3417 has been breached, but prices have thus far failed to make a daily close above it. Caution is still warranted especially given the short-term overbought conditions. An hourly support is at 1.3311.

"The region between 1.3417 and the annual high is expected to see a fair degree of resistance and should likely offer a reasonable short entry opportunity in the near future."

Euro and Other European Currencies Hit Monthly Highs

European currencies are testing the top of their recent ranges today with the euro hitting a 6-month high against the U.S. dollar and the Swiss Franc reaching a 2-month high.

"We can't attribute the move to data because the only economic report released from Europe was German producer prices, which declined in the month of July.  Economists had been hoping for an uptick in price pressures but unfortunately weak demand is keeping a lid on price growth, which eases the ECB's concerns about inflation," says Kathy Lien at BK Asset Management.

At the same time, no U.S. economic reports are scheduled for release today.  

Lien believes it's the combination of a decline in U.S. yields and optimistic German growth forecasts that has driven the euro higher.

Ten year Treasury yields are poised for their first decline in 4 trading days, which put pressure on the dollar against many of the major currencies.