[B]As of Monday’s NY close, the Euro was still testing former resistance at the 2007 highs near 1.4880/1.4900 as dollar bulls weigh the currency down. The drop is in line with the shift in interest rate expectations that we saw take place last week following the European Central Bank’s rate decision, as overnight index swaps are now pricing in almost 30bps worth of rate cuts within the next 12 months. [/B]
Less than a month ago on July 21, overnight index swaps were pricing in 40bps worth of [I]hikes[/I]. However, the release of Euro-zone GDP on Thursday will go a long way to confirm or dispel fears of an all-out economic contraction in Q2, as these interest rate expectations are based primarily on the fact that ECB President Trichet put the spotlight on the downside risks for growth in the region. Until then, though, traders should keep an eye on immediate support levels, as [B]a EUR/USD break below the 2007 highs will likely target 1.4680/1.4700[/B].