Commerzbank: Euro-Dollar "Levels Below 1.20 are Justified"

Foreign exchange analysts are backing further Dollar strength in the wake of the U.S. Federal Reserve meeting, but the Euro-Dollar exchange rate's dip below 1.20 could ease selling pressures as bargain hunters return to the market.

Euro exchange rates could find some life on Thursday's policy meeting at the European Central Bank which will offer some key guidance as to where Eurozone monetary policy is heading over coming months.

Wednesday's Federal Reserve event presents the highlight of the week for the foreign exchange market with the outcome potentially setting the tone for currency markets over coming weeks.

The Dollar will depreciate further say strategists with Goldman Sachs who have this week confirmed they maintain bets against the currency.

The Euro-to-Dollar exchange rate has dug in its heels above 1.21 in recent days while benefiting from a double-barrelled and nearby technical support on the charts, although its path higher is overshadowed this week by risks stemming from Federal Reserve (Fed) monetary policy.

"EUR-USD is still trading below 1.22, indicating that investors remain prudent about riding a more sustained appreciation of the common currency or a decline of the greenback, and that they are probably waiting for the upcoming ECB meeting on Thursday," says Roberto Mialich, FX Strategist at UniCredit Bank in Milan.