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The Euro dropped to a month low of 1.3056 after dovish comments from ECB president Trichet who confirmed that the central bank is of the view that further easing and additional non-standard measures are needed. The remarks confirmed market expectations that a 25 bps rate cut would come sometime over their next two policy meetings.
• Japanese Yen: Choppy Above 99.00
• Pound: Weaker on Global Growth Concerns
• Euro: Trichet Talks Rate Cut
• US Dollar: U of M Consumer Confidence On Tap
Euro Sunk By Trichet's Comments, Will Citigroup and GE Earnings Add To Dollar Strength?
The Euro dropped to a month low of 1.3056 after dovish comments from ECB president Trichet who confirmed that the central bank is of the view that further easing and additional non-standard measures are needed. The remarks confirmed market expectations that a 25 bps rate cut would come sometime over their next two policy meetings. Meanwhile, the Euro-zone trade balance deficit narrowed to -2 billion from -10.9 billion as imports declined faster than exports. However, the region continues to see demand from its main trading partners weaken which is threatening to extend the current recession.
The ECB from the outside appears to be at odds over whether to cut rates again and embark on quantitative easing measures. President Trichet denied those contentions stating that the committee was united in its thinking. However, recent comments from member Axel Weber cautioning against cutting rates below 1% and purchasing debt appears to be in conflict with some of his peers. George Provopoulos and Athanasios Orphanides have called for further easing and more nonconventional efforts which appear to be the direction that he central bank will take. The euro/dollar has now broken below the 100-day SMA which had been providing support, the 50-Day SMA now appears as the next significant technical level to watch at 1.3038. A break below there could see the pair look to test the 1.2500 price level.
The pound is being dragged lower by the increasing risk aversion as fears grow that earnings releases scheduled today for U.S. financial companies may disappoint. Sterling started to come under pressure after the Council of Mortgage Lenders last night revealed that plunging UK house prices have forced 900,000 mortgage borrowers into negative equity. The housing market continues to deteriorate and there is a concern that the BoE efforts to provide liquidity to the market may not have as significant an impact as expected. This could limit upside potential and keep the pound/dollar range bound as longer-term signals are still pointing toward bullish momentum. We could see support at the 20-Day SMA at 1.4662 which may lead the pair to trade between 1.4600 - 1.5000 over the short-term until we see clearer signs of economic stability.
The dollar has been supported well over night as concerns grow in Europe and risk aversion flows gained momentum. The only major economic release scheduled today is the University of Michigan consumer confidence indicator which is expected to improve to 58.5 from 57.3. The U.S. economy showing signs of stabilizing and the government's consistent efforts to do whatever it takes to improve conditions has started to have a positive impact on sentiment. Fed chairman Ben Bernanke is speaking today in Washington DC and the central bank leader's comments always deserve watching. Earnings from GE and Citibank may have the most market moving potential, if the financial giants continue the theme of positive financial sector results we could see risk appetite improve and the dollar weaken. However, if as many expect that they will continue to show scars from the credit crisis, then further dollar support could be expected.
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To discuss this report contact John Rivera Currency Analyst: firstname.lastname@example.org