Euro strengthens on ECB’s unlimited bond-buying plan

The euro rose against most of its 16 major peers after two central bank officials said European Central Bank President Mario Draghi will announce unlimited sterilized bond buying to quell the region’s debt crisis.

The 17-nation currency climbed to a two-month high against the dollar last week amid optimism Draghi would announce additional monetary stimulus at tomorrow’s ECB meeting. The pound touched a three-month high against the dollar as services growth accelerated, adding to speculation the central bank will refrain from policy stimulus. Canada’s dollar weakened even as the Bank of Canada Governor Mark Carney reiterated that an increase in the central bank’s interest rate may be needed.

 “In the very short run, there is potential for the euro to appreciate as the risk premium on European assets decline with the ECB potentially doing a little bit more,” said Aroop Chatterjee  a currency strategist at Barclays Plc in New York. “We expect the ECB to reaffirm the tone from their last meeting, but there are a lot more details that will be needed to be filled in.”

The euro rose 0.3 percent to $1.2601 at 5 p.m. New York time, after falling as much as 0.5 percent. It reached $1.2638 on Aug. 31, the strongest since July 2. The shared currency gained 0.2 percent to 98.77 yen. Japan’s currency was little changed at 78.39 per dollar.

The shared currency gained as much as 0.3 percent versus the Swiss franc, its largest intraday move in a month. It traded at 1.20400 per euro.

Chart Patterns

“Technically, the euro is in a really nice downtrend and a convincing break above $1.2650 could reverse this downtrend,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “Draghi talked about bond buying at the last meeting, so there has been a lot of optimism priced in and the euro has already moved higher. It could be buy-the-rumor, sell-the-fact.”

The euro may decline to a two-year low after it reaches the upper range of its so-called downward channel, Forecast Pte said.

Option traders have cut bearish bets on the euro to the lowest since February 2009 as the ratio of outstanding puts to sell shares of the Euro Currency Trust versus calls to buy the securities fell to a more than three-year low of 1.38-to-1 on Aug. 31, according to data compiled by Bloomberg.

Source: Bloomberg