Investing.com -- EUR/USD rose considerably on Tuesday halting a four-day losing streak, as currency traders await a pivotal European Central Bank meeting for further signals of divergence between central banks in the U.S. and the euro zone.
The currency pair traded between 1.0563 and 1.0637 before settling at 1.0634, up 0.0067 or 0.63% on the session. Previously, the euro closed down against the dollar in six of the last seven sessions and nine times in the last 12 trading days amid increasing likelihood from the Federal Reserve that it will raise short-term interest rates this month for the first time in nearly a decade. Despite the gains, EUR/USD still remains near its lowest level since April. The euro has not traded in parity with the dollar over the last decade.
EUR/USD likely gained support at 1.0567, the low from November 27 and 1.0818, the high from Nov. 13.
The euro could fall further against its American counterpart later this week if the ECB's Governing Council, as expected, institutes a wide range of easing measures aimed at staving off deflation throughout the euro zone. In recent weeks, ECB president Mario Draghi has sent strong indications that the central bank will increase the scope of its comprehensive €60 billion a month bond buying program, tentatively scheduled to run through next September. Last week, Reuters reported that the ECB could also impose a two-tiered penalty next week for banks that leave deposits at its facility. The ECB's benchmark refinancing rate is at a record low of 0.05%, while rates at the deposit facility are already in negative territory at minus-0.20%.
The Federal Open Market Committee, meanwhile, is widely expected to raise its benchmark Federal Funds Rate at its two-day meeting on Dec. 15-16, a move which could send the dollar up even higher against the euro. On Tuesday, Federal Reserve Bank of Chicago president Charles Evans discussed the importance of moving upward gradually after an initial rate hike, providing further hints that the Fed appears ready to raise rates.
Elsewhere, factory activity in the U.S. slumped to its lowest level in three years as the Institute for Supply Management's (ISM) PMI Index fell to 48.6 in November, dropping below 50 for the first time since November, 2012. New orders fell sharply by four points from 52.9 to 48.9, its lowest level in more than three years. Markit's PMI index in the euro zone rose 0.5 points from its November flash reading to 52.8, in line with consensus estimates.
Yields on the U.S. 10-Year rose one basis point to 2.14%, while yields on the Germany 10-Year remained flat at 0.47%.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, lost 0.40% on Tuesday to close at 99.81. One session earlier, the index flirted with 12-month highs after surging above 100.30.