ECB Trichet Could Make or Break it for the Euro

Both fundamentally and technically, we continue to believe that there the EURUSD will reach 1.50 but whether or not this will happen soon will be dependent upon ECB President Trichet’s comments tomorrow. Now that we have seen an interest rate hike from the central banks of both Sweden and Australia, the ECB won’t be alone in considering higher interest rates.

We do not expect a rate hike to be delivered, but with inflation well above their 2 percent target, the ECB will have no choice but to be hawkish. Having been so proactive with injecting liquidity in the midst of the credit crunch in August, the ECB may be proactive again with combating inflation. They need a strong Euro to offset the rising the cost of oil which is why we haven’t heard one word of complaint from Trichet even though the Euro has risen above 1.45. Economic data also continued to indicate that the impact of a strong currency on the German economy has been limited as industrial production was much stronger than expected in September. An interest rate hike by the ECB or hawkish comments tomorrow could exacerbate the strength in Euro. We believe that the ECB could say that “strong vigilance” is needed towards inflation, which would signal that rates would be raised in the very near future. Find out how to trade the ECB decision.