Despite yesterday's solid gains, developed markets still have a host of issues that they must deal with before returning to pre-recession levels. At the forefront of these concerns are troubles regarding high unemployment rates and heavy debt burdens, both of which threaten to choke off any potential recovery in the West. 

While things have been gloomy across much of the globe, European markets have seen brighter outlooks in recent weeks thanks to robust growth out of European heavyweight Germany. However, the continent does not appear to be out of the woods just yet, with weak data coming out that showed lower than expected retail sales in Germany and a sharper than expected decline in Italian manufacturing levels. These conflicting data reports, along with continued weakness in American markets, looks to put today's ECB meeting into focus [also read Which Euro ETF Is Right For You?].

The ECB will meet later today to give its decision on rates and update its growth projections for the rest of the year and for 2011 as well. While there is a virtual certainty that the bank will leave rates on hold, there is some speculation as to what the bank's growth rate predictions will be and what it its plans are for normalizing its generous liquidity programs. While most analysts predict that the bank will stand pat on the liquidity provisions, some feel as though the bank could state that it is planning on keeping the procedures into place well into 2011. This seems even more likely given recent comments from German central bank president Axel Weber, who is traditionally known as an interest rate "hawk." Weber stated that the ECB should maintain the programs until early next year, when it reevaluates ending the programs. "I guess Weber was pre-empting the consensus view of the Governing Council," said Klaus Baader, co-chief European economist at Societe Generale SA in London. "Increased uncertainty about the growth outlook abroad certainly plays a role. The ECB may not normalize its liquidity provision yet."

This provision, which if extended would essentially guarantee unlimited funding to banks until the year end, however this is pretty much priced into the market at this point. The real thing that traders have to watch out for is if the bank signals that it will begin to tapper off the liquidity program sooner rather than later. If this happens short-term deposit rates are likely to shoot higher as funding becomes in greater demand for banks who will be forced to shore up their capital reserves in the near future [also see Time For A Leveraged Euro ETF?].

Due to this ECB meeting and the projected growth rates, we believe that the Rydex CurrencyShares Euro Trust (NYSE: FXE) will remain in focus throughout today's trading session and is our ETF to watch for Thursday. The fund has had a difficult 2010, posting double-digit losses, but it has made back some of this bearish run in recent weeks thanks to easing fears over the European sovereign debt crisis among peripheral members of the 16-nation common currency zone. Should the bank give adjust its growth projections upward or signal the end of its crisis liquidity programs by the end of this year, it could lead to a large spike for the beaten-down euro during today's trading session [see fundamentals of FXE here].

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Disclosure: No positions at time of writing, photo is courtesy of Eric Chan.

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