The euro initially climbed against the US dollar yesterday, and the pair broke the 1.20 level for a brief while. The reason for the move was information about China’s withdrawal from the purchase of US government bonds. The US dollar managed to regain support and the pair dropped back to the previous level. Support is set at 1.19, resistance at 1.20.
The Bloombacks Agency said on Wednesday that Chinese officials responsible for the country’s foreign exchange resources recommended reducing or suspending the purchase of US government bonds. The markets reacted instantly, and the dollar index dropped to 91.922 level. The EUR/USD pair climbed on the back of the news, breaking the 1.20 level.
However, the reports were quite quickly denied by Chinese officials and described as „fake”. The dollar regained support, and the pair returned this morning to the 1.193 level. The reaction of the markets is a strong proof of how much China is currently influencing the global economy.
Today the markets will closely eye the release of the EBC monetary policy meeting minutes releas. Tapering of the asset purchase is in place already, so any hints about a possible shift of the EBC policy regarding interest rates will be the most influential. A possible end to the asset purchase program post September of this year is also a factor to consider.
Pic.1. EUR/USD chart.
Due to a lack of important economic releases in the US, the markets will be focused on the news from Europe. The sentiment toward the dollar is still a bit low, and good GDP reading from Germany and industrial production numbers from the euro zone may bring some support for the common currency. Any hints about a shift in EBC policy may bring an attemp to move toward the 1.20 level.