ECB Policy Meeting Likely to Generate EUR Volatility

The euro saw a relatively light trading day yesterday, as investors were fearful that the ECB could decide to refrain from announcing new initiatives to lower Spanish and Italian borrowing costs when they meet today. Still, the common currency was able to advance more than 40 pips against the British pound during European trading to eventually peak at 0.7893. The EUR/JPY was up over 50 pips during early morning trading to trade as high as 96.43. That being said, the gains proved to be short lived, as the pair dropped down to 96.10 by the afternoon session. Today, traders will want to pay close attention to the ECB Press Conference, scheduled to take place at 12:30 GMT. Analysts are warning that if the ECB refrains from announcing any new measures to lower borrowing costs in the region, risk aversion could return to the marketplace which may result in broad losses for the euro during afternoon trading. In addition, a Spanish ten-year bond auction, scheduled to take place before the press conference, will likely shed some light on the current state of the Spanish economy. Should demand for Spanish bonds come in lower than expected, the euro may turn bearish as a result.

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