The Euro rallied against the Dollar on Wednesday as ECB members tried to explain the anticipated interest rate hike in July. Early in the session, one member of the ECB explained that his belief was that the rate hike would be a single event and not a series of hikes. The Euro reached its lowest point of the day on this comment.

Later in the session, another member of the ECB stated that it was his belief that there was the possibility of a series of cuts. The Forex traders seemed to put more weight in his rational for a series of hikes and rallied the Euro into the close.

These two comments support what I have been saying for two months: until either the Fed or the ECB actually raises rates, the Euro is likely to trade inside of the 1.60 to 1.52 range.

The ECB seems to have more flexibility in this matter as the Euro Zone has not gone through the same economic weakness as the rest of the world. The Fed and the Bank of England, for example, are still waging a delicate battle between fighting inflation and choking of an economic recovery that may just be starting.

Financial traders who bet on the direction of interest rates by committing to spread positions are already factoring in the possibility of a rate hike on August 5. The sentiment rose in one day from 31% to 52%. Traders have also increased their bets that the Fed will raise rates in December from 67% to 96%.

With nothing expected to happen to interest rates for either the ECB or the Fed until July, continue to look for buying to stabilize the Euro near 1.52 and selling to stabilize the Euro near 1.60. The market may just settle into news driven range with trading on both sides of 1.56.

The Possibility of Higher Rates in the U.S. is driving the USD/JPY

The USD/JPY is expected to continue to rise as the interest rate spread between the U.S. and Japan is widening. Traders are selling the Yen and buying the Dollar to capture the higher yield in the U.S.

Japanese Yen put activity is up, indicating that traders are betting on a steep decline in the currency. Look to buy breaks especially after two day breaks.

Bank of England Faces the Challenge To Raise or Not to Raise