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Forex: EUR/USD tests 1.3600 after recovering early losses

In a choppy session, the EUR/USD has recovered almost half of Monday's selloff losses and after bottoming at 1.3460, the EUR/USD has tested the 1.3600. Currently the pair is trading at 1.3580, 0.50% positive on the day.

The risk appetite environment was fueled earlier on the day amid unconfirmed rumors and media reports suggesting the shared currency isn't strong enough to trigger ECB action. Later on the day, President Hollande spoke about the necessity of creating an exchange rate policy for the Eurozone in order to prevent “irrational movements” of the single currency.

Hollande also said that the Eurozone debt crisis has been largely overcome and that "the threat we face now is no longer the mistrust of the markets but that of the people." About the market's confidence, Andrew Wilkinson, Chief Economic Strategist for Miller Tabak points that Rajoy's plot on secret payments list has fueled concerns over government stability and has hurt confidence not only in Spain but the whole Euro area.

"Time for Spanish bailout?" The accusations "have sparked a dangerous jump in the cost of borrowing facing the government," added Wilkinson.

Meanwhile, Fitch ratings affirmed the Kingdom of the Netherlands' AAA rating but at the same time, the agency revised outlooks on the country' ratings to Negative from Stable according to a press release. This revision and the rationale adds concerns over a possible rating cut from the AAA status in Netherlands.

Finally, US President Barack Obama stated, in a recent press release, that budget may not be ready by March 1 and calls Congress to pass small package of spending cuts and tax reforms to replace sequestration.

EUR/USD recovers uptrend

A correction seems only natural. The euro had climbed over 700 pips within the last month, extending its broader bullish bias to a 14-month high of 1.3710 late last week. It can't go up forever, and the current setback is seen only as corrective. The fact that the 1.3460 area held up, support the view.

At the moment, the cross is up 0.50% at 1.3580 with the next hurdle at 1.3620 (intraday support Feb.4) ahead of 1.3660 (high Feb.4) and then 1.3664 (Upper Bollinger). On the downside, a breach of 1.3415 (low Jan.29) would open the door to 1.3377 (MA21d) and finally 1.3349 (low Jan.25).

“The EUR/USD responded at trendline support beneath 1.3500 and the aggressive impulsive bullish count is valid above 1.3403. Look higher. Potential resistance before Friday’s high comes in from the 61.8% retracement of the decline at 1.3613”, underlines J.Saettele, Senior Technical Strategist at DailyFX.

The ANZ Research team remains bullish in the EUR/USD's 2013 forecast. “Despite the correction over the past 24 hours however, we remain constructive on the euro and regard dips as buying opportunities. Our bullish forecast is that the EUR/USD anticipates will sustain appreciation over the course of this year and into 2014”

The Wednesday ahead; Waiting for ECB

The Wednesday's calendar offers Factory Orders in Germany and Ivey Purchasing Managers Index in Canada. Market will be focusing on ECB policy meeting and Chinese January Exports in the coming days.

- ECB Interest Rate Decision (Feb 07 12:45 GMT)
- BoE Interest Rate Decision (Feb 07 12:00 GMT)
- Chinese January Exports (Feb 08 01:00 GMT)

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