Currency traders eagerly waited for the European Central Bank (ECB) press conference to learn whether or not the bank will raise rates at the next meeting. At the start of Trichet’s statement, he stated that rates remain unchanged today, because inflation remains under pressure due to upward commodity and energy prices. He said, “Uncertainty remains elevated, overall our monetary policy remains accommodative lending support to economic activity.” Within the first two minutes of ECB President Jean Claude Trichet speech, he said, “Accordingly strong vigilance is warranted.” Those words signal for a 25 basis point rate hike to 1.50 percent at the next meeting on July 7th. The euro initially rallied towards 1.4635 against the U.S. dollar.
The rise in the euro was short-lived after Trichet explained the 2012 forecast of harmonised index of consumer prices (HICP) decreased to a range of 1.1 and 2.3. While expectations were growing for possible future rate hikes, 2012 rate hikes seemed less likely if inflation is below the target level of 2.0 percent. The euro dropped over 150 points to the dollar before settling near the 1.4500 handle. In the question and answer section of the press conference, Trichet also confirmed that next month’s rate hike will not be the beginning of a series of rate hikes.
The chart below identifies a potential head and shoulders pattern. If euro weakness prevails and closes below the 1.4500 level, further downside targets include the 1.4421 level.
*IMPORTANT NOTICE: The information contained herein is solely for informational purposes and should not be construed as trading advice. edmoya.com believes that the information contained herein is accurate however, edmoya.com cannot guarantee the accuracy of said materials. Under no circumstances shall edmoya.com have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance in connection with the collection, compilation, analysis, interpretation, editing, transcription, transmission, communication, publication or delivery of such information, or (b) any direct, indirect, compensatory or incidental damages whatsoever (including without limitation, lost profits) resulting from the use of or inability to use any such information. The charts and other opinions constituting the information contained herein are, and must be construed solely as statements of opinion and not statements of fact, recommendations and/or trading advice. edmoya.com cautions that no single source of information should be used when making trading decisions.