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Daily Analysis

Euro trades low against the dollar as Trichet rules out anymore hikes

Fri, Jul 4 2008, 10:57 GMT
by Benny Menashe

Finotec Group Inc.

The euro headed for a weekly decline against the dollar on speculation a weakening European economic outlook will rule out future interest-rate increases. The Euro traded near a one-week low against the dollar after European Central Bank President Jean-Claude Trichet said he has ``no bias'' and that economic growth is ``not flattering,'' following the ECB's decision to raise borrowing costs yesterday. The euro touched a one-week low of $1.5675 and is currently trading at $1.5704 as of 7:30 am, GMT. The euro has fallen 0.5 percent this week.

``Trichet has confirmed that the central bank has shifted back to a more neutral stance,'' BNP Paribas SA strategists led by Hans-Guenter Redeker wrote in a research note dated yesterday. ``We believe that interest rates are now on hold, suggesting that further downward pressure on the euro is now likely to develop.'' The euro may fall to $1.53 on a break below $1.5650, according to BNP.

The Australian and New Zealand dollars rose against the euro on speculation the European Central Bank will refrain from adding to yesterday's interest- rate increase, bolstering demand for higher-yielding currencies. The South Pacific currencies climbed the most in seven weeks as ECB President Jean-Claude Trichet said he has ``no bias'' on further moves after raising the region's main refinancing rate to 4.25 percent. The Australian dollar headed for a weekly gain as the difference in yield between two-year Australian and European bonds widened to near the most in a week.

The dollar may advance to 107.70 yen, according to charts traders watch to predict price movements, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank. A so-called candle chart that displays a currency's high, low, open and close for each day, indicated traders became bullish on the dollar. The upside target of 107.70 was on its 200-day moving average, she said. The dollar-yen's short-term technical momentum is bullish, and candle charts on July 2 and yesterday showed a so-called bullish engulfing pattern, a formation that shows the buying pressure exceeded selling pressure, reversing the dollar's bearish-trend, she said. In this formation, the first day's body, which is the area between the open and closing price, is engulfed by the second day's body. USD/JPY currently trading at 106.75 as of 7:57 am, GMT.

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