The euro extended losses against the dollar on Wednesday, falling to session lows amid concerns that European Central Bank President Mario Draghi would flag possible rate cuts after the bank’s policy-setting meeting on Thursday. EUR/USD hit 1.2989, the pair’s lowest since Monday; the pair subsequently consolidated at 1.2996, shedding 0.41%. The pair was likely to find support at 1.2965, the low of March 1 and a two-and-a-half-month low and resistance at 1.3069, the session high. The ECB was widely expected to leave rates on hold at 0.75% on Thursday, but concerns over the economic outlook for the region fuelled speculation over the prospect of future rate cuts. Data on Wednesday confirmed that the euro zone economy contracted by 0.6% in the fourth quarter, in line with preliminary estimates and economists’ forecasts. Meanwhile, wariness over political uncertainty in Italy lingered amid reports that Italian President Giorgio Napolitano is considering appointing a technocratic government after elections last month ended in a stalemate. A separate report showed that U.S. factory orders dropped 2% in January, slightly below expectations for a 2.2% decline. Elsewhere, the euro edged higher against the pound and was almost unchanged against the yen, with EUR/GBP rising 0.10% to 0.8636 and EUR/JPY dipping 0.03% to 121.70. Sterling remained under pressure ahead of the outcome of the Bank of England’s policy meeting on Thursday amid speculation over whether the bank will resume its asset purchase program. The Bank of Japan was not widely expected to announce any changes to monetary policy at the conclusion of its two day policy meeting on Thursday, but a change of leadership later this month was expected to result in a move towards more aggressive easing measures, aimed at combating deflation.
EasyForexNews Research Team