Euro on defensive before ECB easing decision

The euro hovered close to one-week lows earlier on Thursday, with subdued trading after the US Independence Day holiday and before a widely anticipated cut in interest rates by the European Central Bank today.

The ECB is set to make an announcement at 1145 GMT, which will be followed by ECB President Mario Draghi’s news conference. Any hints that emerge about how the bank intends to respond to the region’s debt crisis, like another long-term refinancing operation (LTRO), would be even more significant to market direction than any change to the interest rate.

It appears unlikely that the ECB will reactivate its bond-buy plan just now, but many investors want it used to limit the bond yields of countries struggling with high debt.

The euro last traded at $1.2526, after dropping by around 0.7 per cent the previous day in trading that was subdued because of the US 4 July holiday. The single currency was further pressured after surveys revealed that all of the biggest economies in Europe are either heading towards, or currently in, recession.

Support is at around $1.2495, Friday’s 76.4 per cent retracement of a dramatic surge on the back of the decision by Europe’s leaders to allow the bloc’s rescue funds to be put towards stabilizing bond markets with no additional austerity measures and directly recapitalize banks.