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FOREX Watch: Euro edges higher ahead of ECB

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FOREX Watch: Euro edges higher ahead of ECB

The euro was supported Tuesday by improving fundamentals throughout the currency zone. The 17-nation currency bloc has witnessed gradual recovery among its biggest players, most notably Germany, which beat expectations on key inflation indicators. Germany’s Consumer Price Index edged higher for the July year-end, advancing 1.9 percent, compared to expectations for 1.8 percent. The Harmonised Index of Consumer Prices, which measures price stability, also advanced 1.9 percent to edge out expectations.

The EURUSD tested the 1.33 line in the European session before consolidating at 1.3265 in North American trade. The pair traded quietly on the New York floor ahead of highly anticipated interest rate decisions from the US Federal Reserve and European Central Bank. The technical levels show a slightly bullish outlook for this pair, with resistance at 1.3280 and 1.3313. Both lines proved too difficult to breach earlier in the European session, before the pair fell on central bank speculation.

The EURUSD has advanced more than 2 percent since early July, erasing the losses it incurred following the June FOMC policy meetings, which sent the US dollar index soaring on expectations of imminent stimulus tapering and rate hikes.

Market participants have increased their bets on the euro, which continues to edge higher on the back of strong German data. The Eurozone power house posted impressive IFO figures last week, as well as manufacturing PMI that beat expectations.

The ECB is not expected to announce any changes Thursday, although market participants will watch closely for more dovish signs from central bank President Mario Draghi. Earlier this month the ECB assured investors monetary policy will remain accommodating for an extended period, signaling the potential for lower lending rates over the near-term. The ECB’s benchmark lending rate is already at 0.5 percent.

The currency bloc has struggled with political crisis, weak growth and high unemployment since the collapse of the financial markets in 2008. Earlier this year a fresh bailout controversy emerged, one which pushed Cyprus to the brink of exiting the currency bloc.

Thursday’s announcement comes a year after President Draghi was successful in promising the ECB would do whatever it takes to preserve the single currency. The currency zone has several obstacles ahead of it, but as its chief engine picks up steam, recovery is possible as early as 2014.

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