There has been plenty of talk about the European Central Bank and its next steps as more and more signs point to deflationary pressures in several member countries including Spain and Germany. Overall the economic recovery in the Eurozone is very unstable and after the ECB cut interest rates two meetings ago which surprised forex traders pressures have been mounting for another move in order to stimulate the Eurozone economy.
While it may be unlikely to have another interest rate cut down from the current 0.25% there has been an increase in expectations for a negative deposit rate which would charge banks for keeping deposits with the ECB in an effort to force banks to lend more money and stir up inflation. This scenario is based on hope and non-Eurozone countries have introduced a negative deposit rate without any success.
The Euro has rallied sharply against the US Dollar, the EURUSD currency pair is the most liquid and most traded currency pair. The Euro strength has surprised many forex traders, but the move higher was more due to extreme weakness out of the US economy over the past two months rather than Euro strength.
Forex traders should expect a minor correction in the EURUSD amid profit taking, but given the string of economic disappointments the EURUSD is likely to continue to outperform the US Dollar which could lead the way for a breakout of the current range after a brief correction and open the way higher to the psychologically important 1.4000 level.
Economic data out of the Eurozone may have not pointed to an extreme outperformance, but has shown sign of stability and an improvement in confidence that the Eurozone may perform better than expected while the US has disappointed forex traders which are advised to buy the dips in the Euro.