Good news could be on the horizon for the euro, or it could totally tank by the opening of next week’s forex trading. On Thursday, a meeting at the ECB had traders in a holding pattern while awaiting results of this crucial meeting. While this is important to note, there was still plenty of other important things happening in the forex market, and we think it’s important to catch you up on everything going on. In a somewhat surprising turn, the U.S. dollar actually did much better than expected. The perkier state of the U.S. dollar comes behind news out of the Federal Reserve that the Feds stopped just short of offering more stimulus. On the other side of the globe, the Aussie dollar does really well following data that showed great retail sales in the area. So, where exactly does everything stand ahead of the ECB that could change the market significantly for all currencies?
The dollar held on to gains against major currencies after the Federal Reserve refrained from offering new stimulus, leaving global investors focused on the European Central Bank meeting later on Thursday for any action that could revive their appetite for risk.
There has been speculation that the ECB could reactivate its bond buying program in order to bring down borrowing costs for Italy and Spain to head off a brewing debt crisis.
The Fed’s inaction was largely expected. The dollar had climbed on Wednesday even as the Fed kept the door ajar for further bond-buying to help spur a sluggish economic recovery, a move that would cement the dollar’s status as a funding currency of choice for carry trades.
Markets are anxiously waiting to see if ECB President Mario Draghi will back up his vow to do whatever it takes to protect the euro with serious action.
“It’s really difficult to see how they are going to live up to the market’s expectations,” said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
Resistance from Germany’s powerful Bundesbank has cast doubt on whether the ECB will reactivate its bond-buying program.
The dollar did well because the Federal Reserve decide not to offer more stimulus funding for now. This left the traders open to focus on the events of the ECB meeting. The upcoming meeting is wetting appetites for risk, so traders looking to possibly earn a lot are looking to the euro, but major losses could be in store at the beginning of next week. Speculation is also on the rise about the ECB plans to reactive a bond buying program to bring borrowing costs down for Italy and Spain- this will soften their debt crisis that is just share of full blown disaster.
The move by the Feds came without surprise and the dollar climbed in spite of the news.
The euro edged up 0.2 percent to $1.2251, but remained well below Wednesday’s high of $1.2337.
The dollar held steady against the yen at 78.45 yen, staying above a two-month low of 77.90 yen hit on trading platform EBS on Wednesday.
The dollar index, which tracks the dollar’s value against a basket of major currencies eased 0.1 percent to 82.999 after having risen roughly 0.5 percent on Wednesday.
The Australian dollar rose 0.2 percent to $1.0483, getting a slight lift after data showed a surprisingly strong rise in Australian retail sales in June, suggesting no urgent need for further policy easing by Australia’s central bank.
In addition to the slight rise of the U.S. dollar, the Aussie dollar did really well after promising data about their retail sales. The Aussie dollar has probably been the most stable of the major currencies lately.
Do you think the news from the ECB will be disappointing?