Euro finds no relief

The euro fell to a fresh 6-week low versus the dollar as investors found another reason to sell the shared currency. The ECB reported the repayment of the second 3-year LTRO was €61.1 billion below the €122.5 expected, smashing the euro that couldn't even find relief in better-than-expected readings from the German IFO series.

A report from the European Commission that forecast the eurozone economy will contract again in 2013 combined with caution ahead of an Italian election this weekend also weighed on the euro.

"Next week's trading could be heavily influenced by the Italian election outcome, though if the current uncertain sentiment continues, there could be a slight bias for the U.S. dollar to strengthen against foreign currencies", Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank commented.

Elsewhere, crosses are mainly consolidating within recent ranges, with the main exception of currencies linked to commodities that have been influenced by domestic events. The CAD slumped to a 7-month low on disappointing CPI and retail sales, while the AUD rose propelled by less dovish than expected RBA Stevens comments.

Euro pressured below 1.3200

The EUR/USD bounce attempt seen during the European session was short-lived as the euro faces new sources of pressure. EUR/USD failed to consolidate back above the 1.3200 hurdle and the ascendant trendline off July lows that was pierced yesterday, and resumed the downside. EUR/USD scored a fresh 6-week low of 1.3144 on Friday and remains vulnerable trading near lows.

With short-term indicators still pointing lower, the pair has scope to extend losses with 1.3115 (100-day SMA) in sight ahead of the important 1.3070 area, where the 38.2% retracement of the 1.2041/1.3710 rally stands. On the other hand, the 1.3200/20 zone should offer immediate resistance, but the pair would need to regain the 1.3300 level to ease the immediate pressure.

Commenting on the EUR/USD, the TD Securities team notes that the recent trend lower in remains intact and will be hard for the market to shake off. "Peripheral sovereign spreads are steady ahead of the Italian election but the EU Commission downgraded its growth outlook for 2013 (another year of contraction), core EZ-US short-term rate spreads continue to widen out against the EUR and banks opted to repay a lot less of the second 3Y LTRO cash back than was expected", they comment.

"All told, we think the backdrop limits intraday EUR gains to the 1.3200/20 area and that we may see another push back towards 1.3140/50 support. Ultimately, we think EUR/USD may test 1.28/1.29", TD Securities concludes.