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Euro Firms Up After Early Setback Following ECB Draghi's Speech

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The euro strengthened against its major rivals in the European session on Thursday, trimming its recent decline, after European Central Bank President Mario Draghi sounded less dovish than had been expected, indicating that policy makers had not discussed about rate cuts, despite sending a clear signal about an interest rate reduction at the central bank's upcoming monetary policy meeting in September.

In his press conference in Frankfurt, Draghi said that recent economic indicators continue to outline somewhat slower growth in the second and third quarters of this year.

The euro area's ongoing weakness was driven by prolonged global uncertainties, which particularly affect the region's manufacturing sector.

The risks to the euro area growth outlook remain tilted to the downside, reflected by geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets.

Draghi cautioned that inflationary pressures remain muted and indicators of inflation expectations had worsened.

Consequently, the bank is examining measures, which include steps to reinforce the forward guidance on policy rates as well as the design of a tiered system for reserve remuneration and options for the restart of asset purchase program.

Draghi said that the governing Council is determined to act after seeing the next projections in September.

Some of the members had different views on the stimulus package, Draghi said, adding that no discussion on rate reduction was held today.

The ECB kept its key rates unchanged after the rate setting meeting in Frankfurt. The main refi rate is currently at a record low of zero percent, the deposit rate is at minus 0.4 percent and the marginal lending facility rate is at 0.25 percent.

The ECB altered its forward guidance by adding the word "lower" to its expectation over interest rates.

"The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term," the bank said.

Survey from Ifo Institute showed that Germany's business confidence weakened more-than-expected in July.

The business climate index fell to 95.7 in July from revised 97.5 in June. The score was forecast to fall to 97.2. The initial reading for June was 97.4.

The currency erased its ECB-led losses against its major counterparts in the European session.

The euro appreciated to a 2-day high of 1.1175 against the greenback, up by 0.7 percent from over a 2-year low of 1.1101 seen at 8:30 am ET. The pair was worth 1.1140 when it closed deals on Wednesday. Should the euro rises further, 1.13 is likely seen as its next resistance level.

The euro was 0.8 percent higher at a 2-day high of 121.05 against the yen, following near a 7-month low of 120.05 it touched at 8:30 am ET. The pair had closed Wednesday's deals at 120.51. Next immediate resistance for the euro is possibly seen around the 124.00 region.

Data from the Bank of Japan showed that Japan producer prices rose 0.7 percent on year in June - shy of expectations for 0.8 percent and down from the upwardly revised 0.9 percent gain in May.

On a monthly basis, producer prices eased 0.1 percent after sliding 0.2 percent in the previous month.

Having dropped to near a 5-week low of 0.8892 against the pound at 8:00 am ET, the euro bounced off 0.6 percent to 0.8945 following Draghi's speech. The euro-pound pair had ended yesterday's trading session at 0.8923. The euro may possibly face resistance around the 0.91 level, if it appreciates again.

Following more than a 2-year low of 1.0962 set at 3:15 am ET, the euro strengthened against the franc, rising 0.8 percent to a 6-day high of 1.1045. At Wednesday's close, the pair was worth 1.0969. Continuation of the euro's uptrend may see it challenging resistance around the 1.13 region.

The single currency added 0.8 percent to a 2-day high of 1.4690 against the loonie, after falling to near a 2-year low of 1.4575 at 8:30 am ET. The euro was trading at 1.4634 against the loonie at yesterday's close. Further uptrend may take the euro to a resistance around the 1.49 level.

The euro was up by 1 percent at an 8-day high of 1.6737 against the kiwi, reversing from a 3-day low of 1.6575 it recorded at 8:30 am ET. At yesterday's trading close, the pair was quoted at 1.6616. The euro is seen challenging resistance around the 1.70 level.

The 19-nation currency spiked higher to near a 2-week high of 1.6091 against the aussie, marking a 1.1 percent rise from a low of 1.5921 seen at 8:30 am ET. The euro was worth 1.5967 per aussie at Wednesday's New York session close. The euro is likely to face resistance around the 1.62 level.

Reserve Bank of Australia Governor Philip Lowe said that the central bank is ready to ease monetary policy further if needed.

"…if demand growth is not sufficient, the Board is prepared to provide additional support by easing monetary policy further," he said in Sydney.

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