EUR/USD bulls and bears are locked in a tight battle as hawkish comments from ECB officials prevent the currency pair from succumbing to the recovery in the US dollar.
ECB President Trichet said that even though the markets are still suffering from very severe turbulence, the central bank cannot afford to second round effects to get out of hand. More specifically he said that the central bank is determined to bring inflation from 4 percent back down to 2 percent. They are keeping a particularly close eye on the rise in unit labor costs and reminding household and businesses that they are guaranteeing price stability in the medium term. ECB Wellink went one step further in his comments this morning. He said that “if you don’t stop inflation before it rises further, it will take 10 years to get it under control.” German producer prices and the Eurozone Trade Balance are due for release tomorrow and we expect the data to be Euro bullish.