The Euro has finally rebounded after three straight days of weakness on the back of weaker US economic data. There was no European data released last night. Yesterday, the ECB left interest rates unchanged and President Trichet failed to comment on further rate hikes aside from the one that is priced in for June.
Interestingly enough, we are beginning to hear less hawkish commentary from Eurozone officials. ECB Constancio said this morning that he expects inflation to be at 2 percent or less this year. This comment comes at an opportune time as the market turns its focus on inflation next week. The Eurozone, France and Germany are all releasing consumer prices. We are expecting softer inflation growth because the rise in gasoline in the US is mostly a domestic issue. Also, the prior strength in the Euro further reduces inflation pressures. Meanwhile in addition to CPI, we are also anticipating GDP and Eurozone industrial production. At this point, it will be difficult for the EUR/USD to strengthen beyond its all time high of 1.3680.