EUR/USD: ECB Bond-Buying, Upbeat Data to Buoy the Euro

The Euro is presumed to continue receiving a boost alongside the US dollar today after the European Central Bank delivered on its pledge to step in the bond markets in efforts to preserve the Euro. Such pronouncement by ECB President Mario Draghi helped lift European stocks, with the Stoxx Europe 600 Index surging 2.3 percent to register its largest increase in more than a month. Meanwhile, the Euro strengthened to as much as 1.2650, a level not seen since July 2.

Seeking to back up his vow to do whatever it takes to preserve the Euro bloc, Draghi said that the ECB has agreed to launch a new and potentially unlimited bond-buying program to lower borrowing costs in Euro Zone countries such as Spain and Italy who are struggling to manage their debts. Large-scale purchases of short-term government bonds would drive prices up and push interest rates lower, essentially taking some pressure off of financially distressed governments. The program aims to target government bonds with maturities of one to three years, including longer-dated debt. Defending the move, Draghi expressed that the ECB will now have a fully effective backstop to prevent potentially destructive scenarios. The move has seemingly given investors confidence that the central bank has taken large strides to stem the region’s debt predicaments. With the ECB managing to calm the jittery financial markets, the single currency is presumed to sustain its strength.

Likewise, upbeat economic data from Europe and the US are deemed to bolster risk appetites further today. From the Euro region’s powerhouse Germany, industrial output is deemed to have recovered in July. Destatis is awaited to report that German Industrial Production edged up by 0.1 percent in July, turning around from the 0.9 percent plunge seen in June. Meanwhile in the US, yesterday’s upbeat ADP labor report and the ISM Services PMI have led investors to deem that the official August Non-Farm Payrolls report could provide a positive surprise. The US economy is said to have generated 123,000 jobs last month, still weaker than the 163,000 count in the previous month. With yesterday’s reports, analysts estimate a larger print, which in turn would likely improve prospects for the US economy. Considering these, a long position is advised for the Euro-Dollar trades today.

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