The European Central Bank is not expected to alter interest rates tomorrow, but the comments from ECB President Trichet should lead to some volatility in the Euro.
The big question is: How close is he to raising interest rates? Inflation pressures continue to persist and the high level of oil prices is undoubtedly a concern for the central bank. Yet economic data is beginning to weaken. German retail sales dropped 1.3 percent in the month of November which was much weaker than the market expected while industrial production fell 0.9 percent. Consumer spending is important for any country and even if the German unemployment rate fell to a 6 year low, if consumers are not spending, there are no drivers for growth. The best option for Trichet is to keep his mouth shut, but of course he does not have that luxury. Instead, we expect him to repeat the comments that he made last month, which will unfortunately not satisfy Euro bulls.