Forexpros – The euro dipped against the dollar on Wednesday after rallying on anticipation that the Federal Reserve will announce plans to stimulate the economy via monetary easing measures.
Talk that the European Union will give thought to softening tough austerity measures applied to Greece in exchange for bailout money also bolstered the euro earlier to a 1-month high, though the currency erased some gains earlier in Asian trading on fears fundamental economic woes will continue to plague the economy.
In Asian trading on Wednesday, EUR/USD was trading down 0.06% at 1.2677, and up from a session low of 1.2677, and off from a high of 1.2690.
The pair was likely to find support at 1.2592, the low from June 15, and resistance at 1.2748, the high from June 17.
Weak jobs reports, sluggish manufacturing numbers, soft retails sales and tepid gross domestic product rates have many market watchers expecting the Fed will stimulate the economy via money easing measures.
The Federal Reserve is holding a two-day monetary policy meeting and talk is growing the U.S. central bank will take measures to bolster the economy either through outright bond purchases from banks, known as quantitative easing, or by extending a $400 billion program shuffling up its Treasury holdings, known as Operation Twist.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasurys in tandem with the aim of pushing down long-term interest rates.
Unlike quantitative easing, Operation Twist does not expand the Fed’s balance sheet, yet easing measures tend to send the dollar weakening.
Offsetting such fears were better-than-expected numbers for the housing sector, which helped throw the economy into the last downturn in the first place.
In the U.S. on Tuesday, data showed that number of building permits issued in the U.S. rose more-than-expected in May, rising 7.9% to 780,000, the highest level since September 2008, blowing past expectations for a gain of 1% to 728,000.
U.S. housing starts, however fell to 708,000 in May, compared to expectations for a decline to 720,000 and well below April’s 744,000 housing starts.
Meanwhile in Europe, talk that the European Union will at least consider softening austerity measures such as spending cuts and pension reforms slapped on Greece in return for bailout money sent the euro rising earlier as well.
Fears that Greece will exit the eurozone have stemmed in part that Greeks would rather risk default and currency devaluation associated with returning to the drachma in lieu of sticking with painful austerity measures.
Also in Europe, the yield on Spanish 10-year note retreated from record highs earlier this week though they did remain over 7% level deemed unsustainable by the markets.
Spain recently accepted a EUR100 billion bailout to recapitalize the country’s banks, though markets fear Madrid may soon need a larger bailout to rescue the country as a whole.
Elsewhere in Germany, a report showed that the ZEW index of economic sentiment in Germany dropped in June on fears debt crises in Greece and elsewhere in Europe will slow the economy at home.
The poll on Germany’s economic sentiment fell to -16.9 from 10.8 in May and well below market calls for a decline to 4.0, which further weighed on the euro.
The euro, meanwhile, was up slightly against the pound and up against the yen, with EUR/GBP up 0.01% at 0.8029 and EUR/JPY trading up 0.04% at 99.55.
Later Wednesday, Germany will release official data on producer price inflation, a leading indicator of consumer inflation.
Also on Wednesday, the Federal Reserve will announce its decision on the direction of benchmark interest rates and economic projections.
The data is to be followed by a press conference with Fed Chairman Ben Bernanke to discuss the monetary policy decision.
The U.S. is also to release government data on crude oil stockpiles.