The European Central Bank raised rates by 25bp to 4.00% as expected. ECB’s Trichet predicts inflation rising by year-end, however. Australian first quarter GDP increased by 1.6% q/q, very well above expectations fueled by high consumption and increased business investment.
News and Events:
The European Central Bank raised rates by 25bp to 4.00% as expected. ECB President Jean-Claude Trichet, in his statement following the rate decision, signaled at a halt in rate hikes for the next few months on the basis of slower inflation forecasts and a slowdown in housing price growth. However, those statements still possess upside bias and confirm a still hawkish ECB as Trichet predicts inflation rising by year-end. The Euro has lately been in a short-squeeze following strong US data last week.
Australian first quarter GDP increased by 1.6% q/q, very well above expectations fueled by high consumption and increased business investment. With investors’ opinions that Australian growth is in excess, the market has been pricing-in inevitable continued monetary tightening. AUDUSD is on course to a 100% Fibonacci retracement of 18-year highs.
Today’s Key Issues (time in GMT):
11.00 GBP Bank of England Rate Decision 5.50% vs 5.50%
12.30 USD Initial Jobless Claims (JUN 2) 311K vs 310K
12.30 USD Continuing Claims (MAY 26) 2500K vs 2472K
14.00 USD Wholesale Inventories (APR) 0.3% vs 0.3%
14.00 USD Wholesale Sales (APR)1.0% vs 1.8%
17.30 USD ICSC Chain Store Sales (YoY) (MAY)
19.00 USD Consumer Credit (APR) $5.0B vs $13.5B
The Risk Today:
EurUsd was in a strong short-squeeze this week, finding quite strong resistance at 1.3542, a key level for the pair. The Euro seems to be in a tight range for now between 1.3458 and 1.3542. The squeeze looked more like a correction rather than a trend reversal. Look for a break below 1.3458 for the next leg down.
GbpUsd holding firm after the 1.9900 resistance break, the initial target is 2.0000 and 2.0070 after that. First support holds at 1.9900 but only confirm a bearish stance after a drop below 1.9796.
UsdJpy remains in an uptrend, keeping above 120.40. The pair probed 120.78 in early trading this morning, but bounced back to 121.31. Resistance remains at 121.81 and support at 120.40.
UsdChf the pair broke down through its support of 1.2192 but has since climbed back to 1.2195. On the downside, the pair will find little trouble on a move to 1.2025. On the upside, a break above 1.2287 signals a move to 1.2350 with relative ease.
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Resistance and Support:
By James Brandt - ACM Advanced Currency Markets, Geneva, Switzerland