An ECB Rate Cut Could Sink The Euro Upholding the Long-term Bearish View

The ECB is expected to cut its benchmark rate by 25 bps at its policy meeting which could have a significant impact on euro price action. There is increasing speculation that the central bank may cut deeper than expected as they look to slow the current recession.

[B]Fundamental Outlook[/B]

The ECB is expected to cut its benchmark rate by 25 bps at its policy meeting which could have a significant impact on euro price action. There is increasing speculation that the central bank may cut deeper than expected as they look to slow the current recession. However, many members have spoken against bringing rates close to zero and the committee appears to be split on initiating quantitative easing measures. President Trichet at the last policy meeting hinted that we could se a decision made on the non-standard efforts at this meeting. Therefore, market participants will hang on his every word during the upcoming press conference to see whether Trichet will follow the FED and BoE’s lead. The Euro technical outlook is currently bullish but is maintaining a long-term bearish view and this event risk could be the catalyst to start the single currency’s descent.

[B]Technical Outlook [/B]


The push above channel resistance indicates that the EURUSD corrective advance from 1.2510 is not yet complete. In fact, recent developments suggest a rally through 1.3742 and possibly as high as 1.4150-1.4200 (61.8% of decline from 1.4723 and 100% extension of 1.2510-1.3742). Price ideally stays above 1.3245 now (last night’s low). A word of warning though - triple divergence with RSI on the 240 minute chart [I]warns[/I] of weakness. So, I am bullish, but cautiously so. Confidence is extremely low.

For More Technical Analysis Visit the Daily Technical Report

[I]To discuss this report contact John Rivera, Currency Analyst: [email protected][/I]

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