Will the ECB try to talk down the euro against the US dollar?

The euro’s movements against its major trading partners were variable yesterday although the situation in Italy and signs of the single currency reaching key resistance levels against the US dollar lead to speculation that we may see some depreciation in the near future. In a day in which political influences had a strong bearing on the currency markets, some sources have expressed worry over the on-going uncertainty in Italy following the resignation of five ministers from the cabinet. The coalition failed to agree on budget measures towards the end of last week and now the government looks to be in a very weak and uncertain position which is likely to impact negatively on Italy’s capacity to recover economically and in turn will have a bearing on the performance of the euro. Furthermore, as the euro/US dollar rate moves towards 1.36 – an eight month high – some key figures are predicting that this will prompt the European Central Bank to take action to limit any further movement in this direction through forward guidance. Given the gravity of the aforementioned, the day’s data proved to be less influential – especially so as the data was mixed. Italian and Spanish manufacturing figures came through mildly worse than expected, although they still showed marginal growth, whilst the overall unemployment rate in the Eurozone improved by 0.1%. Today’s key events will be the European Central Bank meeting and following press conference. Interest rates are widely expected to be held at 0.5% and forward guidance is unlikely to change today, but investors will be paying close attention to what is said as there is still much to discuss. Call your trader now to see how the single currency fares in what is likely to be a turbulent period.