The shared currency extended its rally early on in the week, surpassing the psychologically important 1.30 level.
After hitting a 17 month low, the euro has rebounded sharply as investors try to cover their short positions.
Hopes that Greece will reach a deal with its private investors possibly encouraged the rally. Elsewhere, headlines that Germany is discussing running the ESM and EFSF in tandem also provided support to the euro.
The pair was also lifted higher on stronger than expected PMI numbers, which had some trader’s rethink the fate of Euro zone falling into a recession.
Dovish comments from the FOMC encouraged risk appetite after the committee decided to prolong the low rates till the end of 2014.
As a result the euro continued to grind higher breaking through important resistance levels, gaining in excess of 1.5% for the second week in a row.
However, the rally consolidated to lower levels after unemployment rate rose higher than expected and retail sales slid in Spain.
For the time being the euro has been provided with some breathing room, but given the weak economic background the rally will likely be unsustainable.
Looking ahead, the risk lies with Greece reaching a deal with its private investors followed by the EU summit on Monday.
Courtesy: CPM Group for DGCX
