The ECB decided to lift the bechmark rate 25bp to 4.00 pct. as expected, but the point of interest today will be what Trichet will say in the press conference at 12:30 GMT.
MAJOR HEADLINES – PREVIOUS SESSION
EUR
EURUSD traded near three week highs at 1.3538 ahead of the ECB rate announcement, where the ECB did as the market expected and raised the benchmark rate 25bp to 4.00 pct. Both the EUR and the USD have been pretty range bound as well as the Fixed Income market today, awaiting the ECB press conference at 12:30GMT, where the market will be focusing on whether or not Jean-Caude Trichet will maintain that "strong vigilance" is needed. We are biased towards that the ECB will be on the 'accomodative' side, hence not signaling a rate increase on the next meeting. Another thing that has been discussed in the last days is if the European Central Bank will raise the growth forecasts for the Euro-Zone, signaling that the recent rate incerases have been well-founded. Another topic that has been brought to interest is the comments from ECB's Weber, who informed the market that the ECB will not be so clear in their retorics about future rates. In our view, the ECB has been performing very well and Trichet has been vey informative and clear to communcate their monetary policy. In the short term, we could see some EUR-weakness, but remain our stance that EURUSD will test recent highs at 1.3680 within the coming months.
From yesterday:
EUR/USD
The US currency continued lower today despite a strong ISM Manufacturing Index yesterday. In our mind, the fact that the ISM Prices Paid came out lower than expected has made inflationary concerns marginally lower. Today, the focus is on the ISM Non-Manufacturing, released at 16:00 CET. Expectations points towards a figure a tad lower than last time, at 56.0. Bernanke talked the USD lower as he stated that tighter lending standards for mortgages will "restrain'' housing demand for longer than policy makers anticipated. Also, Bernanke said tjat the slump in housing had not spilled over into other parts of the economy. We went long yesterday in EURUSD from 1.3463 and reached our short-term target at 1.3550. However, we are still bullish on the pair but will pay extra attention to the US yields as they are about to break resitance in the bear trend, which will strengthen the USD. The ECB statement tomorrow will be of extra importance - especially the comments from Trichet after the rate decision at 12:30 GMT.
GBP
The pound also rose decently against the USD and other currency pairs on back of expectations that the MPC will be hawkish on Thursday. It broke has broken bear trend resistance from 4/18/07 at 1.9910. The break of 1.9960 could easily give scope for a test of 2.00+ within the end this week.