Euro exchange rate today: EUR carefree and on a tear higher, but will resistance levels scupper the rally?

The euro remains dominant in global FX on Friday; however we have seen a bit of relief for the US dollar in recent hours, as the below forex rates show:

• The euro dollar exchange rate is 0.08 pct down at 1.3608.
• The euro pound exchange rate is 0.26 pct higher at 0.8452.

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"The dollar remained on the defensive on Wednesday amid swirling US fiscal concerns while the EUR outperformed across G10 space following the ECB meeting," says Emmanuel Ng at OCBC Bank noting that the same dynamics are extending into Friday's trading session.

Outlook for the euro remains positive

We consider the latest views on the euro from a host of foreign exchange forecasters.

"In addition to the ECB meeting, the EUR also was supported after Italian PM Letta survived a confidence vote (235-70) as expected.
Given the current circumstances, the pair may continue to contemplate the 1.3600 ceiling while the key 1.3450 support area remains in force," says Ng.

Ipek Ozkardeskaya at Swissquote Research says yearly highs lie ahead for the euro dollar exchange rate:

"Carefree, EURUSD extends post-Draghi gains. The pair hit 1.3644 in New York and remained well bid above 1.3620 in Asia. With strong bullish momentum, traders are likely to remain buyers; downside moves suggest dip buying opportunities with 1.3711 – year-high in target."

Luc Luyet at MIG Bank warns that the rally could stall at resistance:

"EUR/USD is getting closer to its key resistance at 1.3711. The short-term technical configuration remains positive as long as the initial support at 1.3577 holds, but we see limited upside from now on. Another support stands at 1.3505 (02/10/2013 high)."

With regards to the euro pound exchange rate Geoffrey Yu at UBS says despite the euro recovery, he favours the GBP:

"The recent recovery does not change the bearish trend and any further upside should find strong resistance at 0.8471. Support is at 0.8367 ahead of 0.8333."

Regarding EUR/USD Yu says: "The latest strength indicates scope for test of the important resistance at 1.3711. A break above this would open 1.3833. Support is at 1.3578 ahead of 1.3505."

Keep an eye on…

Looking at the fundamental outlook for the euro it is worth keeping an eye on political developments in Germany.

Chancellor Merkel’s choice of coalition is expected with great interest by the FX markets as it will be key in the decision of the financial transaction tax proposed in 11 EU countries.

Traders pursue a tax exemption as to avoid costs and liquidity issues related. This said, the plan excludes the spot transactions, yet will weigh on swaps, options and forwards – roughly the two thirds of the FX market.