Forexpros – The euro fell against the dollar on Thursday after the Federal Reserve said it would expand a program that extends the average duration of its Treasury holdings but stopped short of announcing plans to roll out a direct bond buyback program to juice the U.S. economy.
In Asian trading on Thursday, EUR/USD was trading down 0.28% at 1.2673, up from a session low of 1.2672, and off from a high of 1.2708.
The pair was likely to find support at 1.2639, the low from June 20, and resistance at 1.2742, the high from June 20.
The euro fell as the dollar rose despite good news coming out of Europe.
Greece created a coalition government headed by Antonis Samaras of the New Democracy party, while Spanish bond yields fell to 6.75%, and while high, they were still below recent levels of over 7%, which is deemed unsustainable by the markets.
The dollar rose in early Asian trading on news the Federal Reserve moved to bolster the economy by expanding a USD400 billion program shuffling of its Treasury holdings, known as Operation Twist, by another USD267 billion.
Under Operation Twist, the Fed purchases Treasury securities with remaining maturities of 6 years to 30 years while selling an equal amount of Treasury securities with remaining maturities of 3 years or less.
The market had not fully ruled out the Fed would resort to a more powerful stimulus tool known as quantitative easing, under which the Fed steps in and buys Treasurys and other assets directly from banks, injecting the economy full of liquidity in the process to encourage economic recovery and hiring.
Unlike quantitative easing, Operation Twist does not expand the Fed’s balance sheet and does not involve pumping massive amounts of liquidity into the economy that weakens the dollar with the aim of fueling recovery.
While stimulus in general weakens the dollar, news that quantitative easing remains on hold for now gave the dollar room to rebound.
The euro, meanwhile, was down against the pound and down against the yen, with EUR/GBP down 0.17% at 0.8070 and EUR/JPY trading down 0.47% at 100.59.
Later Thursday, the eurozone will release preliminary data on manufacturing and service-sector output, while Germany and France will release individual reports.
Also on Thursday, ECB President Mario Draghi is due to speak, and his comments will be closely watched.
The U.S. will unveil weekly initial jobless claims followed by preliminary data on manufacturing activity and an industry report on existing home sales.
The country is also to release data on manufacturing activity in the Philadelphia area.
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