Euro slides ahead of ECB meeting

The euro has dropped to a two-month low versus the US dollar as traders consider the possible outcome of Thursday’s meeting.

EUR/USD is trading at $1.3497, slightly lower on the day, as there is speculation that the European Central Bank (ECB) will begin a bond-buying scheme in order to tackle falling inflation and sluggish growth. Interest rates are already at a record low of 0.25% in the eurozone, so the ECB has fewer tools to work with when it comes to stimulating the economy.

The eurozone is still licking its wounds from the banking crisis. The European Banking Authority (EBA) will outline its new parameters for stress tests on Friday, and its aim is to safeguard the banking system from overextending itself as it did in the run-up to the credit crisis.

There is still considerable fear surrounding emerging-market currencies such as the Turkish lira and the South African rand, which has prompted dealers to buy US dollars. This flight to quality has put extra pressure on the euro.

As Brenda Kelly pointed out, $1.35 was acting as a support level, and while we are below it the 200-day moving average of $1.338 could be a target.

Spot FX EUR/USD chart

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