The Euro’s mini rally ended during the Asian trading session, with some of Wednesday’s gains given back, as persistent Spanish doubts continue to pressure the common currency. As reported at 1:37 p.m. (JST) in Tokyo, the EUR/USD was trading at $1.2134, a drop of 0.2%, but off the 2-year low struck earlier in the week when the pair touched on $1.2042.
The Euro was given a lift by comments made by an ECB governing council member, who said that the mechanism to fund the Eurozone’s bailouts could conceivably be licensed; however Mario Draghi, the ECB president, dismissed those thoughts. According to one forex strategist in Hong Kong, the disparity proves that the issue of the licensing of the ESM is a contentious one and not easily settled, even among the ECB. That being said, he doubts that any Euro gains will be enduring, and that bearish sentiment will quickly resume but the downtrend could be limited by the Federal Reserve meeting which will be held last week.
Investors are still hopeful that the Fed will pull QE3 out of its bag of tricks, especially if this Friday’s GDP data is as soft as analysts expect; forecasts call for GDP to fall to 1.4% on a year-over-year basis from 1.9%. But currency strategists have their doubts and believe the Fed will want to take as much time to examine the economic recovery as needed, before embarking on any additional accommodation.