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Short covering drives euro higher

The euro is currently in the black versus the US dollar, as dealers are closing out their short positions on the currency.

Yesterday morning saw poor manufacturing data from Spain, which weighed on the euro. However, today the single currency is trading at $1.3585, up 0.3% on the day, as traders who were short yesterday have taken the opportunity to lock in profits.

Traders have shrugged off comments from former European Central Bank (ECB) member José Viñals, who indicated that the central bank still has room to reduce interest rates further. In early November the ECB cut interest rates to 0.25%, and now inflation is low while growth remains sluggish. This is why Mr Viñals believes further interest-rate cuts could be an option.

Traders are now looking ahead to the US ADP employment report due tomorrow at 1.15pm. This could provide an indication of what to expect from the unemployment-rate announcement at lunchtime on Friday. The Federal Reserve has tied its monetary policy to the jobless rate, and if the job market improves we could see traders selling EUR/USD.

Spot FX EUR/USD chart

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