Investing.com -- EUR/USD was virtually flat on Tuesday, as foreign exchange traders continued to proceed cautiously ahead of a highly-anticipated European Central Bank meeting later in the week.
The currency pair traded in a tight range between 1.0994 and 1.1054, before settling at 1.1012, down 0.0002 or 0.02% on the session. With the slight losses, the euro halted a modest, brief four-day winning streak. EUR/USD has gained roughly 2% in comparison with its level last March when it tumbled to multi-year lows amid expectations that the Federal Reserve was on the verge of ending a seven-year zero interest rate policy. Ever since, the pair has traded in a narrow range between 1.06 and 1.17.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
Investors are expected to remain cautious ahead of Thursday's critical ECB Governing Council meeting in Frankfurt. At the meeting, is widely expected to approve a host of easing measures aimed at bolstering growth throughout the euro zone. When the central bank last met in January, it held its benchmark interest rate at a record-low of 0.05. At Thursday's meeting, the ECB could lower its deposit and margin facility rates, while increasing the scope of its €60 billion a month bond buying program.
The ECB's interest rate decision carries broad ramifications on central banking maneuvering worldwide, ahead of meetings by the Federal Reserve and the Bank of Japan later next week. In late-January, the BOJ rattled global currency markets with a shocking decision to lower a key interest rate into negative territory. A largely dovish monetary policy decision from the ECB could compel the Fed to slow the current pace of its tightening cycle.
Over the weekend, economists at the Bank of International Settlements warned of the potential consequences that could ensue if a host of major central banks continue to hold interest in negative territory for a long period of time. Currently, central banks in Denmark, Sweden, Switzerland and Japan have lowered key interest rates into negative territory.
"There is great uncertainty about the behavior of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period," the BIS wrote in a report. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell to a fresh two-week low at 96.89, before rallying to close at 97.16. The index is down more 1% over the last two months.
Yields on the U.S. 10-Year plunged eight basis points to 1.83%, while yields on the Germany 10-Year lost four basis points to 0.18%. Yields on 10-year U.S. and Germany government bonds have each fallen by more than 20 basis points over the last year.