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Key to the drop has been speculation on whether the European Central Bank will cut rates tomorrow, or more probably announce another bout of Long Term Refinancing Operations (LTRO), in an effort to address the reduction in excess liquidity in the coming year.
The final services PMI for Europe came in slightly ahead of expectations in October and showed a composite expansion for the fourth consecutive month. Retail sales are another story, and continue to disappoint, with August’s figure revised downwards and September’s falling again by 0.6%.
German factory orders also surprised to the upside, rising 3.3% in September against the consensus 0.5% gain estimated. This has seen the euro bounce off the 1.35 level to test recent intraday resistance at 1.3523. The hourly chart is indicating the potential emergence of a double bottom with the base around 1.3450. An hourly close above the resistance could put the pair on a trajectory towards 1.36 at a minimum.
Mild dollar weakness is adding to the current moves, and with little market-moving US data out this afternoon, EUR/USD may continue to trade in a range ahead of the ECB meeting tomorrow.