Euro bounces ahead of rate decision

The Euro continues to rally in today’s trading session, bouncing off a nearly 2 year low after reports that the European Union was in discussion regarding a joint bond issuance to finance energy and defense spending.

One of the upsides to the war between Ukraine and Russia is that EU countries have been brought together closer as one family and cooperation in the areas of defense, finance and even migration are likely to be streamlined and red tape will be cut dramatically.

"European currencies have been under heavy pressures for the past couple of weeks and some of these valuations have begun to look stretched," said Jane Foley, head of FX Strategy at Rabobank in London.

"Yesterday’s news that the EU is considering issuing debt to finance energy and defense spending underpinned the euro and helped trigger the better tone in euro and European currencies," she added.

The Euro has also been boosted ahead of tomorrow’s Interest rate decision by the European central bank and although no changes in rates are expected, market participants will pay close attention to the following monetary statement for plans of the central bank’s next m0oves and if indeed there will be a rate hike as the year unfolds.

Looking ahead today, the economic news calendar is very quiet and there is pretty much nothing that is expected to create volatility in the EUR/USD currency pair so market investors will have to wait until tomorrow’s ECB rate decision as well as CPI figures from the US.

As we can see on the chart, the EUR/USD currency pair found strong support at the $1.0850 mark and has continued to climb as we make our way through today’s European trading session.

I would expect this mini rally to hold until the ECB rate decision tomorrow and if the geopolitical tensions once again cause the ECB to be cautious with regards to raising interest rates we could once again see a sharp decline.