The lack of any major political headlines or data releases set the stage for EUR/USD short covering amid hopes that a pan-European roadmap towards a banking union would emerge in coming weeks.
EUR/USD did very little during the holiday-affected European morning session and was trading around 1.2430 when the US market arrived. The pair tracked higher through the US session, on signs or hopes that European authorities were finally ready to take bold action to short-circuit the eurozone sovereign debt and banking crises. Stops were triggered above 1.2500 to a high at 1.2510 and the pair closed at 1.2497, up 0.50% on the day. EUR/USD might extend the rally in the immediate-term to as high as 1.2620/25, but many analysts feel it should be looked as a selling opportunity if it does.
The ECB will have to get involved at some stage with significant monetary easing in some form and will likely do so if eurozone politicians take steps in the right direction. We expect plenty of volatility, as while there seems to be some agreement that fiscal integration is needed for the eurozone to survive, there is likely to be a huge difference between the German model and what is acceptable to the vulnerable nations that make up the eurozone. Ahead this week, all eyes will be on the ECB decision and Draghi will likely be questioned on potential actions in light of the recent deterioration in the eurozone's sovereign and banking situation.