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Less Liquidity — Stronger Euro. Or Not?
Thesingle European currency tried tobreak thelatest resistance level, set 8 days ago, asthefuture ofthemacroeconomic conditions around theeuro were revised after
’s statement today. But, unfortunately fortheeuro, thegrowth wasn’t long lived.
Although theeconomical recovery, outlined bythe
President, isn’t equal throughout theEurozone, thebanker decided toreduce some ofthefinancial operations used toaid theregion. TheECB meeting also
toleave thebenchmark interest rate unchanged at1 percent. Animportant part ofthereleased
With all themeasures we have taken inresponse totheintensification ofthefinancial crisis, we have supported both theavailability ofliquidity tothebanking sector andtherecovery oftheeuro area economy. Asthetransmission ofmonetary policy works with lags, we expect that our policy action will continue toprogressively feed through totheeconomy. We will continue our enhanced credit support tothebanking system, while taking into account theongoing improvement infinancial market conditions andavoiding distortions associated with maintaining
measures fortoo long.
So, why thebasically beneficial news— andthedecrease oftheeuro liquidity is positive forthecurrency (asit reduces thesupply)— caused only aspike intheEUR/USD rate andthen theeuro returned tonear theopen level versus thedollar? Theanswer is simple— fear. Many currency traders still don’t believe inafast recovery. Themeasures byECB toscale down theemergency measures may be premature, which will spur another wave ofcrisis. Andthespeculators move tothesafe haven oftheU.S. dollar. Ofcourse, such movements aren’t usually
bullish trend soon.
EUR/USD increased slightly today— from 1.5047 to1.5053 after reaching ashigh as1.5140 during theearly trading session. EUR/GBP went up from 0.9040 to0.9102, while EUR/JPY rose from 131.80 to133.02 today.