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- Trichet Signals Rate Increase but Euro Declines
- Kiwi Soars, BOE and ECB Hold Rates Steady
- Prepping for the ECB Press Conference
| Trichet Signals Rate Increase but Euro Declines Posted: 09 Jun 2011 07:11 AM PDT
The euro was down one cent versus the dollar and lower in the crosses at the conclusion of the ECB press conference. Despite Trichet's signal of an impending rate increase in July the euro fell across the board in what looks like a "buy the rumor, sell the fact" type scenario. To say that the euro sold off because the peripheral nations will struggle to grow in an environment of higher interest rates is to discount the price action of the last three weeks. The ECB expects euro zone growth to increase this year between 1.5% and 2.3%. Looking at the price action of the EUR/USD the pair has risen 5% from its low in May to a high reached on Tuesday. While much of the bids for the euro came on the hopes of a solution to the European debt crisis, much of the buying is on the back of increasing interest rate expectations. As the July interest rate was predominantly priced by the market, the euro sold off following Trichet's confirmation. Read more forex trading news on our forex blog. |
| Kiwi Soars, BOE and ECB Hold Rates Steady Posted: 09 Jun 2011 05:17 AM PDT
Prior to the ECB press conference a few items stand out; the dollar remains within yesterday's ranges versus the euro, pound, and yen. The exceptions are the kiwi and the Aussie dollar. The euro which we mostly covered in the previous forex blog post but an item of additional relevance may be Trichet's remarks which may touch on a possible restructuring of the Greek debt. Previously the ECB was staunchly against any restructuring as the ECB is one of the largest holders of Greek sovereign paper but the ECB may be warming to the idea. Sterling is slightly higher versus the dollar after the BOE held interest rates steady at 0.5% for the 27th consecutive month. The central bank also did not change the 200B of gilts the bank carries on its books for the asset purchase facility. The kiwi soared versus the USD both overnight and this morning as the RBNZ was more hawkish than expected. The New Zealand dollar has also received a boost since it was announced that China would be diversifying its FX reserves with the NZD. In contrast the Aussie dollar is noticeably lower for the second day in a row following disappointing employment data and a more dovish than expected RBA. Today's US trade balance and weekly unemployment claims will largely take a back seat to the ECB press conference as the S&P continues to trade in the red for the 7th consecutive trading session. Read more forex trading news on our forex blog. |
| Prepping for the ECB Press Conference Posted: 09 Jun 2011 03:07 AM PDT
Consensus estimates are for ECB President Jean-Claude Trichet to signal an interest rate hike in July by using the catch phrase, "strong vigilance". The risk remains for the ECB to disappoint investors by pausing again, as was the case in May. However, this time around market positioning is more balanced as traders scaled back long euro positions both yesterday and this morning. A failure of the EUR/USD to breach above 1.4700 sapped a bit of momentum from euro bulls and gave traders an opportunity to scale out of some euro exposure before the ECB press conference later today. A 25 bp rate increase appears to be priced into the euro and the EUR/USD would likely jump above 1.4700 to the next support at 1.4750 from the late April/early May lows at 1.4750 with a potential test of the May high of 1.4940. In the mid-term, a settlement from the "troika" to secure future Greek funding needs might give the EUR/USD scope to test the 2009 high at 1.5140. Should Trichet not signal an impending interest rate hike in July, the euro will likely sell-off. While a decline may not occur in the same dramatic fashion as in May due to a more balanced market positioning that is less one sided in favor of the euro, the euro could decline both versus the dollar and in the crosses. The EUR/GBP has already come off of its monthly high/resistance at 0.8875 to trade below 0.8890. A breach of 0.8840 could lead to declines to 0.8750. This former resistance level has further significance as it coincides with a 61.8% Fib retracement of the late May to June move. The EUR/USD would also likely drop sharply. 1.4420 stands out as a 38% retracement and the 50-day moving average is nearby as well, adding further significance to this level. A deeper move could go to 1.4310 off the June low and the 20-day moving average. Read more forex trading news on our forex blog. |
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