Traders focused on interest rates today as both the Bank of England (BoE) and the European Central Bank (ECB) left rates unchanged as widely expected. The real excitement came as Trichet spoke after the decision giving some insight into future policy decisions. The EUR/USD which had been on a slow grind higher overnight came under pressure after Trichet began his question and answer session. The pair dealt to a low just beneath 1.4070 as Trichet omitted the reference that ECB monetary policy is accommodative, suggesting a more neutral stance. EUR/USD sold off more than 45 points on these comments but could not break down below 1.4065-70. A quick and dramatic reversal ensued leaving many traders scratching their heads and wondering what had just happened. Although the slightly dovish comments by Trichet were EUR/USD negative, the buying interest at the 1.4070 level was too great causing a quick pop back towards 1.4150.
It seems that there is still interest in selling the USD and that many traders still believe that the EUR/USD has more upside potential. Tomorrow’s US Non Farm Payroll (NFP) report will be critical and we could see continued USD selling as the US economy slows. If the NFP comes in weaker then the consensus of +100,000 jobs, look for traders to take EUR/USD back towards all-time highs. (AcFx)
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