The common currency remains on hold close to a 3-week trough against the U.S. Dollar but a sell off is capped as investors are cautiously optimistic of a surprise to the upside from the E.U. Summit which starts later today. As reported at 11:16 a.m. (JST) in Tokyo, the EUR/USD was trading at $1.2488, edging higher against the $1.2466 trade overnight in the U.S., but remains within striking distance of the $1.24413 low struck earlier in the week. The pair also remains well off last week’s peak of $1.2748. One analyst in Tokyo said that the summit will convince investors that now is not the time for Euro buying.
Where there is some room for cautious optimism for the Euro’s future is from the European Central Bank; investors are hopeful that next week the ECB might wade into the fray and relieve some of the obvious funding strains. Speculators are counting on the ECB to provide either a rate cut or the announcement of another LTRO at the conclusion of its policy meeting. Recent new that inflation cooled in Germany would give the ECB a little breathing room and allow them to be more accommodative.
Markets will turn their attention to the Eurozone for any surprise news out of the E.U. Summit, but will also be anxious to learn the outcome of today’s Italian bond auction; analysts expect that their borrowing costs could rise above 6%.