It is not hard to understand why the Euro has been so strong over the past few days. Here we have Bernanke skirting comments about the economy and monetary policy and across the pond ECB President Trichet is reassuring the markets that their expectations for growth have not changed and recent inflation risks leave the door open for another rate hike this year.
As long as the market expects the Fed to lower interest rates and the ECB to stand pat, the Euro has a greater chance of reaching 1.40 than 1.35. The rise in gold prices today further suggests that traders are beginning to price in the possibility of a recession. There was no major Eurozone economic data released overnight. Eurozone industrial production is the only piece of data due out tomorrow. Manufacturing activity is expected to be stronger, which should help keep the bid tone under the Euro. The only problem is that the Euro may not be able to break 1.3855 on its first test.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com