The euro gained across the board today following ECB President Jean-Claude Trichet's hawkish comments that solidified future interest rate increases in the euro zone. The message was crystal clear when Trichet stressed strong vigilance is warranted. He also suggested a rate hike could come as early as the next ECB meeting which is scheduled for April 7th.
Following the speech the EUR/USD rose to its highest level since November 2010, peaking at 1.3975 and closing near its high at 1.3960, up from 1.3855. The EUR/CHF was also up sharply, trading as high as 1.3019 and closed at 1.3000 from 1.2803.
These comments by Europe's leading central banker show the ECB's commitment to fight inflationary forces. Rising food and commodity prices have the ECB concerned that if it does not get out ahead of inflation concerns then rising prices could have a negative impact on the euro zone economy.
The ECB kept its rate steady at 1.00%. However, Trichet did emphasize that this may not be the start of a rate tightening cycle. These strong comments will increase expectations for quicker adjustments to rates as well as a faster timetable for interest rates to rise.
This is certainly a catalyst for the euro and further gains may be expected. The appreciation seen yesterday in the EUR/CHF took the pair as high as the 61.8% Fibonacci retracement level from the February downtrend. Further resistance may be found at 1.3080, a level that coincides with the falling downtrend from the November and February highs. A move above this level would target the 200-day moving average at 1.3170.