The aggressive ECB move to add liquidity will tend to curb near-term Euro support
The US currency found support around 1.4430 against the Euro and pushed back to around 1.4380 against the Euro in European trading on Wednesday with the Euro seeing selling pressure above the 1.44 level.
The ECB sanctioned an additional and unlimited funding facility on Tuesday to ease the year-end liquidity fears. The bank allocated a huge US$501bn in a two-week funding operation at an average rate of 4.21%. The facility did succeed in lowering Euro market rates which will boost confidence that central bank actions are having some success.
Some of the funds secured could be switched into other currencies which will could have some negative impact on the Euro, especially as wider liquidity will run at reduced levels over the next few days. Institutions, however, will probably want to maintain Euro holdings ahead of the year-end which should provide some currency protection.
The German IFO index weakened to 103.0 in December from 104.2 previously which will reinforce expectations of a significant slowdown in the economy which will hamper the Euro.