Investing.com -- EUR/USD inched down on Wednesday, as currency traders remained cautious ahead of a highly-anticipated interest rate decision from the European Central Bank.
The currency pair traded in a tight range between 1.0946 and 1.1035, before settling fractionally lower at 1.0999. EUR/USD has been relatively steady over the last two and a half weeks, closing in a band between 1.086 and 1.102 in each of the last 14 sessions. Since the start of the 2016 calendar year, the euro has edged up its American counterpart by approximately 1.35%.
EUR/USD likely gained support at 1.0709, the low from January 5 and was met with resistance at 1.1378, the high from Feb. 11.
As expected, foreign exchange traders were hesitant to make any major moves in advance of Thursday's closely-watched ECB Governing Council meeting in Frankfurt. In recent weeks, ECB president Mario Draghi has sent strong signals that the central bank will approve further easing initiatives as a means for bolstering economic growth throughout the euro zone and staving off inflation. When the central bank last met in January, it held its benchmark interest rate at a record-low of 0.05. The ECB could also lower its deposit and margin facility rates, while increasing the scope of its €60 billion a month bond buying program.
The euro has struggled against the dollar since last January when the ECB announced the launching of a comprehensive Quantitative Easing program aimed at staving off deflation and bolstering growth in the area. The program involves the purchase of €60 billion a month of assets by the central bank in order to increase the amount of money supply available for banks to lend money to businesses and individuals. Large-scale easing initiatives also typically push interest rates lower, reducing domestic investments by foreign purchasers and weakening the local currency against its main rivals.
Analysts from ING have estimated that EUR/USD could fall as much as 1.5% if the ECB approves added stimulus, including raising the total of monthly asset purchases by as much as €5 billion. In addition, a group of a dozen analysts forecasted that the Governing Council could lower the deposit between 10 and 20 basis points and extend the bond buying program from anywhere between three and six months.
In the U.S., wholesale inventories rose by 0.3% in January, increasing by the highest level since last June and halting a three-month streak of negative moves. Analysts expected to see a slight decline of 0.1% for the month. As a result, the inventory to sales ratio fell by 1.3%, marking its fourth consecutive monthly decline.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell to an intraday low of 96.94, before rebounding to settle at 97.19 on a volatile day of trading. The index, which is down more than 1% over the last two months, remained near two-week lows on Wednesday.
Yields on the U.S. 10-Year rose five basis points to 1.88%, while yields on the Germany 10-Year added six basis points to 0.24%. While yields on 10-year U.S. Treasuries have fallen 30 basis points over the last year, they have rebounded 16 basis points over the last month.