The euro has fallen against the dollar today (June 2nd) on speculation the European Central Bank (ECB) could reduce interest rates when it meets later in the week.
Various policy options are up for debate at the ECB's monthly meeting this week, with a cut in interest rates likely to be towards the top of the list of items on the agenda.
The euro was down after inflation readings from Germany were subdued, while data released by the Commodity Futures Trading Commission on Friday showed speculators grew short positioning on the euro to 16,633 contracts from 9,220.
During the European session today, the euro fell by 0.2 per cent to hit $1.3595, hovering slightly above the three-month low of $1.3586 it reached on Thursday.
ING currency strategist Petr Krpata told Reuters: "With market participants unwilling to be brave enough to take against-consensus euro long positions ahead of the meeting, and the potential for an upside surprise in US data, we expect euro/dollar to remain under pressure."
"The euro should move back closer to $1.3600 level, while the 200-day moving average of $1.3644 is now an important level to watch."
Investors will be keeping an eye on the release of eurozone inflation data, which is set to come out tomorrow, while the health of the single currency could also be affected by upcoming US manufacturing data.
RTFX Fund Management portfolio manager Francesco Scotto said: "The three-month risk reversal shows that the market prefers a bearish scenario. Traders are expecting a delivery from Mario Draghi and a decision will probably put an end to the speculation on when the ECB will start quantitative easing."
Both the ECB and the Bank of England held interest rates at their May meetings, but there is pressure on both organisations to announce a change in the near future as a result of the improved state of both the European and the UK economies in recent months. However, UK interest rates are expected to be held at their current record low of 0.5 per cent until 2015.
Learn about the sterling and forex trading at City Index
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.