The US dollar staged a late session rally following an agreement with Republican congressman that will allow for an extension of the Bush era tax cuts. The lower income tax rates would stand for another two years. Obama was quoted saying the compromise, “Is a good deal,” for Americans as it would extend tax cut to all Americans as well as unemployment benefits to those who have been out of work for a number of months. Moody's Investor Services was of the opinion that the tax cut extensions will not lead to a downgrade in the US credit rating as current fiscal pressures may remain stable.
The announcement of the agreement led to a dollar rally with the EUR/USD trading as low as 1.3260, from an opening day price of 1.3336. Early in the day the pair reached a high of 1.3400 before heading lower where the current price coincides with the rising trend line on the hourly chart.
The greenback was stronger versus the Canadian dollar as well as the Australian dollar following decisions by both central banks to hold interest rates steady and monetary policy statements that suggested an easing of monetary policy.
At the end of trading, the USD/CAD closed higher at 1.0120, up from an opening day price of 1.0050. The AUD/USD was down at 0.9829 after opening the day at 0.9903.
A lack of data releases in the US may have investors looking toward Europe for FX influences. The Irish budget votes are expected to face tough opposition and could help to weaken the euro and drive traders to buy dollars. EUR/USD support and resistance come in at 1.3250 and 1.3400.
