The Euro fell to the lowest level in 11 months against the U.S. dollar after a report suggested that German Chancellor Angela Merkel opposed expanding the size of the European Stability Mechanism (ESM), the European future bailout fund, which boosted risk aversion in markets, as investors shunned risky assets and targeted lower yielding assets including the U.S. dollar.

The U.S. dollar erased earlier losses and gained after the Merkel reports, where earlier on Tuesday, investors were feeling optimistic after demand for a Spanish bond sale proved to be strong, which eased concerns over the debt crisis in Europe. Meanwhile, investors now are eyeing the Federal Open Market Committee, as the FOMC is expected to leave the current monetary policy unchanged, and put the final touches on the new communication policy, which is not expected to be implemented at this meeting.

The U.S. dollar index, which tracks the performance of the U.S. dollar against a basket of six major currencies including the Euro, the Pound, and the Yen, rallied on Tuesday to the highest level Since January 2011, where the USDIX traded at 79.97, compared with the opening level at 79.54, while recording a high of 80.13 and a low of 79.30.

Gold prices fell to trade at $1662.22, compared with the opening level at $1665.18, while crude oil prices gained to trade near $100 a barrel, up from the opening level at $97.86 a barrel.

The Euro extended its heavy losses against the U.S. dollar on Tuesday, where the EUR/USD trimmed its early gains and fell on daily basis to trade at $1.3079, compared with the opening level at $1.3164, while recording a high of $1.3237 and a low of $1.3057. The EUR/USD pair acquired the first target at $1.3120, and since the pair is trading below this level, we should expect it to drop to the next target at $1.3000, while settling above $1.3120 should push the pair back to $1.3315.

The British Pound also fell against the U.S. dollar, where the GBP/USD pair fell to trade at $1.5517, compared with the opening level at $1.5575, while recording a high of $1.5629 and a low of $1.5509. the GBP/USD pair is now trading below the $1.5590 level, and accordingly, we should expect the pair to head towards the next support at $1.5270, while rising back above the $1.5590 resistance will lead the pair back to the $1.5780.

The U.S. dollar fell slightly against the Japanese Yen, where the USD/JPY pair fell to trade at ¥77.90, compared with the opening level at ¥77.95, while recording a high of ¥77.96 and a low of ¥77.64. The USD/JPY pair is now trading above ¥77.70, and so long it continues to trade above this level, the next target is set at the ¥79.55 resistance level, while breaching the support at ¥77.70 will lead the pair to the next support at ¥76.65.