Euro rallies as market hangs hopes on ECB

By Ian Chua

SYDNEY (BestGrowthStock) – The euro held on to overnight gains early in Asia on Thursday, having posted its biggest one-day rise in six weeks in a dramatic turnaround as the market cut short positions ahead of the European Central Bank policy meeting.

Investors are pinning their hopes on the central bank to help calm the hysteria over the euro zone debt crisis by expanding its bond purchase programme to support beleaguered peripheral euro zone government debt markets.

“All in all, if the ECB wants to stop contagion, it needs to announce a plan that is both big and durable, say 1 trillion euros or more over the coming quarters,” Societe Generale analysts wrote in a client note.

“This, however, is unlikely to happen today. We fear that the hopes created on Wednesday will be disappointed. A mild version, where the ECB warns that its SME programme is still up and running and might be beefed up, will hardly suffice.”

Yet, the euro surged more than 1 percent against the dollar on Wednesday to hit a high of $1.3180. It last traded at $1.3129, little changed from late New York.

Initial support for the single currency is seen at the 200-day moving average currently at $1.3122, followed by $1.3078, the 50 percent retracement of the June to November rally, then $1.2964, this week’s trough.

Disappointment from the ECB could easily see the euro come under renewed pressure. “I’d think the euro is quite possibly going to return to below $1.30,” said Sean Callow, strategist at Westpac Bank in Sydney.

The euro’s rebound was accompanied by a rally in European equities and peripheral euro zone bonds, which saw the Spanish and Irish 10-year yields fall some 20 basis points each. Spain’s stock index (.IBEX: ) jumped 4 percent.

European Commission President Jose Manuel Barroso said he was confident the ECB would take whatever action necessary to protect the stability of the single currency bloc, while a U.S. official told Reuters the U.S. would back a bigger EU stability fund.

Rescue packages for Ireland and Greece this year had done little to quell market fears that other weaker euro zone members including Portugal and Spain will also need aid at some stage.

The ECB will announce the outcome of its policy meeting at 1245 GMT, followed by a news conference at 1330 GMT.

The euro gained nearly 2 percent against the yen, reaching 110.76 from as low as 108.40, and also climbed off a record low against the Australian dollar at around A$1.3514. It was last at 110.51 yen and A$1.3572.

Investors gave both the dollar and yen a wide berth as the euro rallied, knocking 0.6 percent off the dollar index (Read more about the global trade. ) (.DXY: ), which tracks the greenback’s performance against a basket of major currencies.

Against the Japanese currency, the dollar rose to 84.39 yen from an intraday low around 83.35 yen. It last stood at 84.16 yen, unchanged from late New York levels.

Benefiting from a rebound in the euro, commodity prices and global stocks, the Australian dollar gained about 1.5 cents to $0.9687 from the session low around $0.9536.

Australia’s retail sales are due at 0030 GMT, could give it a further boost if the data surprises on the strong side. Analysts polled by Reuters expect a 0.3 percent increase.

(Editing by Wayne Cole)

Euro rallies as market hangs hopes on ECB