Hopes for some stabilisation in conditions will support the Euro, but it will struggle to make much further headway in the short term.
The German IFO index edged higher to 83.0 in January from 82.6 previously and compared with expectations of a decline which will provide some relief to risk appetite and contain fears over the Euro-zone economy. There were mixed comments on interest rates from ECB officials.
The trends in risk appetite will continue to have an important market impact. When fear eases and stock markets rise, the dollar and yen will tend to lose ground while the Euro will gain support. In contrast, the Euro and Sterling will be at high risk of renewed losses when market confidence deteriorates again.
Risk confidence could improve slightly further in the short term, but overall sentiment is likely to be fragile which will limit the scope for Euro gains with choppy trading conditions to persist.