Euro Strengthens on Speculation ECB Measures will Solve Crisis

Tradervox.com (Dublin) – The 17-nation currency rose versus the yen to more than three-week high as speculation the European Central Bank has taken the right measures to quell the debt crisis in the region rose yesterday. The euro had strengthened against the dollar as reports from Italy showed that the economy contracted less than the market forecast. Further, euro’s strength was supported by reports from the European Union which indicated that the euro region had not requested any help in funding he government bond buying program.

McNeil Curry, who is the head of Foreign Exchange technical strategy at the Bank of America Merrill Lynch in New York, noted that the biggest position in the market has been short euros. He said in a television interview that this position has come into question due to price action trade back to topside. He added that investors have been forced to square back their positions as the market changes. The euro has increased by 0.5 percent against nine of the most traded peers last week while the yen declined the most by 1.3 percent. The US dollar dropped by 1.1 percent in the same week.

Investors are showing confidence in the ECB’s decision and the euro has reacted by adding 0.4 percent against the yen to trade at 97.46 yen per euro at the close of trading yesterday in New York. The currency had climbed to a high of 97.82 yen, which is the strongest it has been since July 12. The Japanese currency fell against the dollar by 0.5 percent to close the day at 78.61 yen. The 17-nation currency increased by 0.3 percent against the dollar and remained little unchanged at $1.2399.

The strengthening of the euro is related to the recent announcement by the ECB President Mario Draghi, who outlined a plan which involves ECB buying debt from struggling countries in the euro area. This decision has been backed by German Chancellor Angela Merkel’s government which has been very vocal about such move in the past. This sudden change of heart has created confidence among investors hence the euro/dollar pair has increased.