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Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. “An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic,” TheLFB-Forex.com Trade Team said.
TheLFB-Forex.com Trade Desk Thoughts: The ECB maintained the Minimum Bid Rate at 1.00%, inline with the market’s expectations. In the current rate cut cycle, the ECB has reduced the key interest rate by 325 basis points, down from 4.25%.
The market will now shift its focus to Mr. Trichet’s press conference, which starts approximately 45 minutes after the interest rate decision. It is expected that the President of the ECB will assess the downside risk, while announcing a new quantitative easing plan. Currently, the Euro-zone economy is in a recession, with analysts estimating a recovery might not be likely until the early part of 2010. In the first quarter, the Euro-area GDP contracted by 2.5%.
TheLFB-Forex.com Trade Team notes that previously, ECB members have appeared reluctant to reduce the overnight rate too much, as it might spur inter-banking lending.
Forex Technical Reaction: The euro fell 30 pips following the news release, re-testing the low of the session and at the same time the support area of the last two days of trading. For now, the euro appears to be trading in a head and shoulders pattern.
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