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Daily Fx Strategy

ECB To Remain Passive Towards Euro Strength

Thu, Mar 27 2008, 14:34 GMT
by Ashraf Laidi

CMC Markets

US jobless claims fell 9K to 366,000 last week, with the Easter Week shutdown in Puerto Rican claims offices partly attributed for the decline. The GM strike in Michigan and Ohio plants continues to weigh on the employment situation, and raises expectations of a third consecutive monthly net decline in non farm payrolls. We may also see a rebound to the 5% level in the unemployment rate.

US Q4 GDP remained unrevised at 0.6%, while corporate profits fell 3.3%.

ECB Will not Do Much on the Euro

Euro is losing over a full cent from yesterday’s $1.5840 high after ECB president Trichet reiterated his concern for excessive currency moves. Nonetheless, Trichet did tacitly justify the currency’s appreciation by indicating that Eurozone credit is growing “very strongly”, Eurozone fundamentals “remain strong”, and that the region is not observing the same credit crunch as in the US . Trichet also reiterated the need to anchor inflationary expectations. With such tacit justification for the euro’s strength, it leaves very little ground for the EC B to intervene, hence, any potential interference in the currency may stem from the need to temper the rate of appreciation, rather than reversing the course.

According to a wire report citing a unnamed “G7 Source”, European government officials are increasingly irritated with the US on its passive handling of the dollar ahead of next month’s G7 meeting. But the situation is more complex than that. Some officials in the US may express impatience with the European Central Bank’s persistently neutral-to-hawkish monetary policy. Many have suggested that an ECB easing would not only help the global economy and complements the Fed’s easing, but also would help stabilize the dollar’s decline/euro strength. The flawed part of such argument is not only associated with disregard for the ECB’s inflation mandate, which, is currently breached by more than a percentage point, but also due to Europe’s relative economic strength vis-a-vis the US. Aside from the contrast in consumer and business confidence between Europe and the US (today showed another string of improvement in European confidence figures).

On the data front, Germany ’s GfK consumer confidence rose to 4.6 in April versus an expected 4.4, while Italy ’s retailers' confidence rose to 110. 7 in March versus expectations of 110.3. .

Interim support holds at the 3-day support at $1.5720. We expect further declines to stabilize at 1.5690, which are followed by rising support at 1.5660 The prolonged contrast of economic data between the US and the Eurozone Germany is greasing the wheels for a euro climb towards the $1.5980s, but the market will yet have to show the necessary confidence in breaching above the $1.60 level.

• Another 3-Steps-Up-2 Steps Down for the Yen
• Sterling's Gains Remain Short-lived
• EURGBP

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Published on  Thu, Mar 27 2008, 14:36 GMT

Archive

• Dollar Cheers Sales, Ignores Autos
  Published On Tue, May 13 2008, 13:41 GMT
• Sterling Deepens Gloom, Yen Gains on Risk Appetite
  Published On Fri, May 9 2008, 14:57 GMT
• USD Unable to Follow up, GBP Down Across the Board
  Published On Mon, May 5 2008, 14:58 GMT
• Why Optimism Remains Premature?
  Published On Mon, Apr 21 2008, 15:03 GMT
• Euro Soars as CPI Justifies Hawkish ECB
  Published On Wed, Apr 16 2008, 12:12 GMT

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