The ECB has stepped into the market to dismiss the rumors that the bank is going to cut sometime over the medium term via a speech by the head of the German Bundesbank. Mr. Axel Weber’s comments confirmed what TheLFB-Forex team analyst had said in the last few days that the chances for a rate cut coming from the ECB are close to zero. Furthermore, Mr. Weber affirmed that “If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary”
If the Euro-zone growth starts to pick up later this year, fourth quarter being the target right now, the ECB heads are actually thinking about a rate hike. Now, with the “rate-cut story” taken off the table, the euro may actually have some space to post gains. ECB interest rate futures contracts, Eonia, are starting to price out the possibility of a rate cut.
Despite the much better than expected durable orders read, the market seems resilient to buying dollars right now, with the euro actually posting gains on the day. On 25 July, the last time the DGO report was released, the dollar strengthened 80 pips against the euro on better than expected numbers, much like Wednesday’s.
The daily euro chart shows the pair is very close to breaking a trend-line that has acted as resistance for more than three weeks. If the pair finds the strength to close above the 1.4750 level, we may see some long orders coming over the following days. Traders could profit from these move using a split ticket from the 1.48 area to 1.49, testing the highest point from the last two weeks. However, tomorrow the U.S. calendar has a very important report scheduled, the preliminary GDP report for the second quarter.
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This article has 1 comment:
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Coelacanth
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77 Comments
Aug 28 02:10 PMThat said, I think people are dreaming if they think the ECB is going to hike rates again. The EU has made no bones about their desire to see a weaker euro to help their exporters. That said, central bankers don't like to see their currencies fall in to death spirals (like USD earlier this year) and I suspect Papademos's jawboning the other day was more an attempt to make sure the depreciation of the euro is more orderly rather than sudden. It's also telling he got on the wires just after German CPI showed clear inflation easing in August.
Another ominous sign is the German unemployment read for August ballooned way above consensus (-10,000 consensus vs. -40,000.00 actual).
The divergence between ECB rhetoric and economic reality on the ground is widening.