EUR/USD's latest foray below 1.1200 ended in frustration for euro bears as the optimistic tone surrounding EU aid talks enhanced upside risks for the single currency.
Though details remained to be ironed out, the overall tone was positive nL8N2DW3N4, with headlines from the discussions lifting EUR/USD away from the session's 1.1194 low on EBS.
Meanwhile, supportive factors elsewhere were building in favor of more EUR/USD gains.
Euro zone inflation expectations, reflected in euro five-year-by-five-year forward inflation linked swaps EUIL5YF5Y=R, began rising again after a pull back last week.
The options market also showed signs that investors were hedging for a EUR/USD rise.
EUR/USD risk reversals EUR1MRR=FN still show vol premiums for puts exceed those for calls, but that premium has been eroding after a brief correction last week.
Technicals highlighted upside risks as well.
Daily and monthly RSIs rose and the 21-day moving average was lending support.
If risk-on sentiment -- accompanied by dollar and yen selling -- persists, EUR/USD could break above the 10-DMA and June 17 daily high.
Such a move should target 1.1355/60 and 1.1405/25 resistance.
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