EUR/USD needs to break $1.3833

EUR/USD continues to consolidate between $1.3780 and $1.3833, which is the 61.8% Fibonacci retracement level from the May 2011 highs to the July 2012 lows.

Unless there is a break and close above this metric, we can expect to see a degree of sideways EUR/USD action.

Dollar weakness is becoming something of a trend and any drop in the dollar basket below the $79.00 level (25 October lows) could dent sentiment further towards the greenback.

The strength of the euro is not something to be cheered. Given how fragile the eurozone recovery is, the negative effect on any export-led economies means that the ECB has something of a task ahead to regulate the credit markets.

Despite continual rhetoric that the ECB has many monetary tools, the truth is that it doesn’t. News that there is something of a housing bubble in Germany will not be conducive to negative interest rates.

A break and daily close above the $1.3833 level tends to put this pair on a trajectory towards $1.40. Only a move back through $1.37 would argue against this.

US pending home sales, released later this afternoon, should provide some direction here – a monthly increase of 0.5% is expected.

Spot FX EUR/USD (DFB) chart

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