It took six attempts for the euro to break the $1.1300resistance level this month. One day after breaching the barrier,the common currency is fast approaching the next line in the sandamid a rally that now has analysts pondering what it will take toslow the best-performing major currency this quarter.

For chartists from JPMorgan to RBC, there are few obstaclesremaining before the euro lifts off in a sustained rally amidfading political risks and a monetary policy shift on the horizon.With the $1.13 post-U.S. election high giving way, $1.1428, a levellast reached as traders awaited the result of the U.K.'s vote toleave the European Union a year ago, remains one of the lastlines of defense for euro bears before the common currency advancesto the $1.17 area last seen in August 2015.

“The November high was really important and we did push throughit,” said Niall O'Connor, a technical analyst at JPMorgan. “If wedo break through the $1.16-17 zone, there's really not a whole lotof resistance. We'll start talking about a bigger base breakout forthe euro.”

Traders brushed off suggestions by European officials Wednesdaythat the market misread remarks from European Central BankPresident Mario Draghi a day earlier in which he downplayeddeflation risks and opened the way for paring monetary stimulus.The common currency climbed 0.4% to $1.1379 as of 1:04 p.m. NewYork time, after it reaching as high as $1.1391. It gained as muchas 1.49% on Tuesday.

Draghi's “comments are a hawkish surprise and now set upexpectations of an ECB tapering announcement in the fall,” MarvinLoh, senior global markets strategist at BNY Mellon, wrote in anote to clients.

Quantitative easing has held the euro down as the ECB keeps anegative deposit rate and continues to purchase domestic bonds tobuoy asset prices. But with normalization on the horizon andpolitical risks fading, the currency has rebounded 7.8% this yearand gained against all of its G-10 peers. As the economy recovers,banks such as HSBC and UBS expect the euro to embark on adollar-esque rally in the coming year.

To George Davis, chief fixed-income technical analyst at the RBCDominion Securities, Tuesday's breakout past $1.13 is revealing andconsequential, given that the level was tested several times beforebeing breached.

“If someone's got a medium to longer term horizon, the priceaction we've seen in the past few weeks and especially todaybasically suggests that your bias would be to play the euro fromthe long side, using pullbacks down towards the $1.115 area asbuying opportunities,” Davis said.

The euro moved sharply after Draghi's comments, suggesting thatinvestors were caught off guard as to the possibility that hisspeech could rattle markets. Commodity Futures TradingCommission positioning shows that hedge funds are just slightlyshort the euro and at levels far below their five-year average.Should the current rally continue, wrong-footed investors couldaccelerate the upward move, analysts from ABN Amro wrote in a noteTuesday.

Deutsche Bank raised its euro forecast to $1.16 or above byyear-end, up from $1.03 previously, strategist George Saraveloswrote in a note. He argued that Draghi's speech wasn't thefundamental driver behind the change in view but it aptly markedthe culmination of a number of developments that have caused theforecast update.

Yet technical levels aside, there are a few fundamental barriersthat could cap the euro's rise, the ABN Amro analysts, led by NickKounis said. If U.S. economic data begin to surprise on the upside,breaking a string of disappointing releases, some downward pressureon the dollar may ease. The euro may also run out of steam ifFederal Reserve speakers succeed in convincing the market thatthey'll stick to their rate hike path, the analysts wrote.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.