The Euro took a minimal lead against the U.S. dollar on Thursday morning and again turned to test levels around 1.2600. The support for single currency comes at a time when the market expects the Fed meeting and still looks for a specific direction. Tomorrow the president of the U.S. Central Bank, Ben Bernanke, will give more clarity about the future monetary policy and the need for new financial incentives. Meanwhile, the Australian dollar sank to a one-month low (1.0316), due to the intensifying fears of a serious economic slowdown in China.
Probably, Bernanke will avoid the issue of additional financial incentives, but still, if he hints at a new stage of the program for the asset purchase, he will blow up the currency markets. The market participants prefer to report this risk and therefore, they currently remain more cautious in transacting.
Any decision of new spending and money printing by the Fed would hit the stability of the U.S. currency. Since the mid of July, the dollar came under massive pressure and the losses that gathers at this moment against the euro, still have nature of correction. If the Fed stake again on the incentives and continue to maintain an artificial growth of the U.S., the dollar will lose its attractiveness permanently and the euro might be able to rise, despite the unresolved debt problems in the Eurozone.
Next week the European Central Bank is likely to propose a specific mechanism for reducing the cost of financing the most indebted countries in the euro bloc. A probable option for the bank is to buy directly Spanish and Italian government bonds from the market, in order to reduce their interest rates.
Over the last few sessions, the Australian dollar took into a strong downtrend, after the optimism regarding the Chinese economy fell significantly. China is the largest importer of Australian resources and eventual delay of growth will have negative impact on import.