Euro falters but fall contained on ECB hopes

The euro dropped today as short-term technical charts reflected a bearish signal, but losses were restricted by hopes that the European Central Bank could soon begin fresh measures to tackle the debt crisis in the euro zone.

The common currency’s downside was forecast to be limited in the build up to Thursday’s ECB policy meeting, with the focus on if it decides to reactivate its bond-buying initiative to help cut Italian and Spanish borrowing costs.

The euro slipped by 0.3 per cent to $1.2293, falling back from a three-week high recorded on Friday of $1.2390, but still holding over two cents above $1.2042, a two-year low hit on the EBS trading platform last Tuesday.

Its failure to close higher than a key technical level around $1.2325 last Friday was weighing on the euro for now, according to Standard Chartered Bank’s head of FX research Callum Henderson. He said that was the charts’ short-term bearish signal. However, the euro’s downside could be limited over the few days ahead, with Henderson adding that the currency would likely remain range-bound in the run-up to the ECB meeting.

Last week, ECB President Mario Draghi vowed to protect the region from collapsing, increasing hopes that the ECB planned to introduce lower borrowing costs for the zone’s more indebted nations such as Italy and Spain.