The ECB stance on Thursday will be crucial for near-term Euro direction with the comments on currency levels watched particularly closely.

The dollar was trapped close to record lows in early Europe as sentiment stayed depressed and subsequently weakened to a fresh all-time low of 1.5340 with increased fears over the labour market.

Market attention will tend to focus on the ECB during Thursday with the latest monthly council meeting. The ECB remains concerned over inflation, but faces a very difficult balancing act as growth fears have also increased. There will be a particular focus on economic divergence with Span and Italy showing a sharp deterioration in recent data. The Euro strength has also acted to tighten policy which will lessen the need for high interest rates.

Overall, interest rates should be left on hold at 4.00%, but the statement from ECB President Trichet will be watched very closely. A softer stance by the central bank head on monetary policy would undermine the Euro. Strong protests against prevailing currency levels such as use of the word brutal would also undermine the Euro and could trigger a rapid sell-off.