The Euro is trading not far from its record highs and this consolidative price action tells us one thing, which is that the currency is ready for a breakout.
Judging from the price action of the currency as well as the sentiment of the overall financial markets, the odds are definitely more in favor of an upside breakout. We continue to believe from a fundamental and technical perspective that we will see 1.50 before we see 1.46 in the EUR/USD. However beyond that the call becomes much more difficult. When the EURUSD came close to touching 1.50 on Friday, ECB officials began to get worried. Central Bank President Trichet said that he was opposed to brutal FX moves even though he did not specifically describe the Euro’s move as brutal. This morning we had a barrage of additional ECB speak. For the most part, the central bankers felt that inflation will continue to rise in the coming year and growth will slow. Their perspective on the Euro is probably best described by Wellink who said that the currency’s recent rise is not an “immediate concern,” but a further rise will be “worrying.” This suggests that a breach of 1.50 may force them to act either verbally or physically.
[B]Written By Kathy Lien, Chief Currency Strategist for DailyFx.com[/B]