There will be strong expectations that the ECB will cut interest rates to 1.0% at Thursday's council meeting. There will also be further speculation over the adoption of non-standard policy measures. This speculation will tend to undermine the Euro ahead of the decision. There will be scope for renewed Euro buying support after the council meeting if quantitative easing is rejected. Underlying risk appetite is also still firmer which will shield the currency. Overall, there should be further near-term Euro support on retreats towards the 1.3250 level while it should be capped below Tuesday's high in the run-up to Thursday's decision.
The Euro pushed to highs around 1.3440 against the dollar in early US trading on Tuesday, but was unable to sustain the gains above resistance levels and retreated back to below 1.34 following the US data releases and Fed testimony.
There was a sharper than expected decline in Euro-zone producer prices, maintaining expectations that the ECB will cut interest rates to a record low of 1.0% at Thursday's meeting while Euro-zone retail sales also continued to decline with a 4.2% annual drop.
The issue of non-standard policy measures will also remain an important focus and the Euro will tend to be vulnerable to some selling pressure ahead of the meeting. As caution increased, the Euro weakened to test levels around 1.3320 later in US trading with a further retreat to near 1.3260 on Wednesday. Underlying risk appetite is still firmer which should lessen selling pressure on the Euro.