The Euro will struggle to make much headway without an improvement in sentiment surrounding the global economy, but there should be solid downside protection given US vulnerability
Risk appetite remained generally weaker on Monday while the European economic data did little to support confidence. Any comments from ECB officials will remain extremely important ahead of Thursdays council meeting. Following January’s meeting, Chairman Trichet suggested that rates would be left on hold in February with the council waiting for fresh staff projections which will be available in March.
Since then, there has been additional pressure for rates to be cut again and any comments over the next 48 hours could provide important hints over the likely policy stance this week.
The Euro will continue to be unsettled by structural fears as markets debate the possibility of any Euro-zone economy abandoning the Euro. Fears over further credit-rating downgrades will also tend to be damaging for the currency.
Risk conditions improved to some extent during US trading with a degree of relief over the data and this allowed the Euro to recover back above the 1.28 level. The dollar remained slightly weaker on Tuesday, although the Euro was again unable to break above resistance in the 1.29 region as German retail sales fell