Dollar Strong Ahead of ECB Rate Decision…

[Fxgreece]

by Lena Manousaridi

The correction did happen… EUR/USD did break 1.41 last night near New York close and all dollar bulls seem to be jumping with joy! However, is that it? Do we have more dollar gains to look forward to? Well, let’s wait and see what today brings us what with two very important rate decisions and a statement by Trichet the key events for the day…

Let’s see what happened yesterday. As we mentioned yesterday, the correcting did started with EUR/USD dropping below 1.42 and then find some resistance at 1.4160 which kept the pair for most of the day before the ISM data. As we said yesterday, a better number might trigger further dollar gains and the pair could try to break important support at 1..4135..Fortunately for dollar bulls, data did help the correction and we even saw 1.41 break with the pair trading within 1.4080-1.4095 for the rest of the session.

As long as 1.4185 holds, the possibility for further gains in the dollar are still there.

However, today will determine the short term fate of the dollar as ECB will give us more clues about what are their plans for further rate hikes in the near future. The scenarios want rates to be unchanged and Trichet to be more dovish what with recent crisis and euro above 1.40 to be clear distractions to their original plans. We believe that Mr. Trichet will once again be vague and not wanting to reveal their real intentions, however he will use his words carefully and avoid the V word (vigilant) at this stage, what with continuing pressures regarding the recent strength of the euro being heard from several members of the European Union.

The most likely scenario will be for the rates to be left unchanged and his statement to be more dovish than anything else, as most of the economic data from Euro zone were disappointing. Many market players even suggest that the bank might change its tightening view very soon, and therefore start easing rates in the next months. Before we draw any conclusions, let’s wait and see what happens this afternoon.

EUR/USD trades within tight ranges ahead of Trichet press conference and traders want to hear what he says before entering new long positions at those levels.

Let’s not forget that the uptrend in the EUR/USD is still intact and if Trichet doesn’t signal a cut, euro bulls might find new opportunities for longs since the pair has corrected nicely and offers attractive buying levels under 1.41.

Another event to watch is Bank of England s rate decision which again is widely awaited to remain unchanged. Remember that in the last meeting, the bank unlike its policy which doesn’t include release of any comments, did give us a statement stating the problems that the country faced because of the Northern Rock crisis. That was conceived as negative from traders and we saw the pound weakening all across the board. Today that can easily happen if we see a similar statement afterwards.

So, be ready for an interesting day with many events unfolding and watch out the dollar at those levels, for more signs of strengthening, if today’s and tomorrow’s events work in its favor…