With every passing day, the European Central Bank is slowly shifting its tone. Earlier this month, ECB President Trichet acknowledged that there are downside risks to growth which basically means that the Eurozone will no longer be immune to the US slowdown.
ECB member Garganas went one step further today by saying that the credit markets could have a bigger impact on Eurozone growth than initially anticipated which completely offset the fastest pace of growth in German producer prices in 13 months. Germany is facing the same pressure of higher food and energy prices as the rest of the world which is the main reason why the ECB won’t cut interest rates until they have no other options. We expect a rate cut to come in the second half the year, which should lead to a reversal in the EUR/USD, but before that we should see a push above 1.48 and a possible test of the all time high. Eurozone consumer prices, the Swiss trade balance and Swiss Producer prices are due for release tomorrow – expect another active trading session.