EUR/USD DAILY FUNDAMENTAL ANALYSIS OUTLOOK
The EUR/USD moved heavily on Thursday as investors finally heard the magic phrase from Trichet, yet to the surprise of many was the euro’s strong downside move on the signaled rate hike! The euro sustained the gains most Thursday until the press conference following the decision. The ECB did in fact leave rates steady at 1.25% while Trichet signaled a move in July with the infamous phrase “strong vigilance”. We saw the common currency spike only instantly on the remark and then surrender the gains. The downside move was pressured by a number of factors, yet the dominant theme is that Trichet did not provide a strong motive for gains other than a rate hike almost fully priced in the market. Investors started to rationalize the move with the downgraded outlook for growth and inflation and for the expectations that the ECB will not continue the rapid monetary tightening. Yet truth be told, the euro has been moving higher the past two weeks on those expectations and ignored all the ongoing instability and the debt crisis. On Friday the focus will remain on the euro’s move and how much correction does it still need as the currency now returns to hover in a Greek-centric-mode until next week’s Ecofin meeting. Investors will keep eyeing the Greek developments especially as the German lower house is expected to draft the guidelines accepted for Merkel and the finance minister to discuss as part of the Greek aid. Yet all in all, the volatility will remain high. From Germany we have the final CPI estimate for May at 06:00 GMT and expected unrevised at 2.4% annual gain in EU harmonized terms and with 0.2% monthly drop. From the United States we await the slightly effecting import price index at 12:30 and expected down 0.7% in May from 2.2% rise. As for at 18:00 GMT we have the Monthly Budget Statement for May and expected with a widening deficit to 150 billion from 135.9 billion. The volatility is to be seen with the end of the week trading and after the strong move on Thursday. Investors will also be cautious as the market opens to many banking holidays in Europe and ahead of the Ecofin meeting that is expected to discuss the second Greek bailout and accordingly the EUR/USD might continue to fluctuate heavily and even with the euro’s losses we still see overall room for gains.
The EUR/USD moved heavily on Thursday as investors finally heard the magic phrase from Trichet, yet to the surprise of many was the euro’s strong downside move on the signaled rate hike! The euro sustained the gains most Thursday until the press conference following the decision. The ECB did in fact leave rates steady at 1.25% while Trichet signaled a move in July with the infamous phrase “strong vigilance”. We saw the common currency spike only instantly on the remark and then surrender the gains. The downside move was pressured by a number of factors, yet the dominant theme is that Trichet did not provide a strong motive for gains other than a rate hike almost fully priced in the market. Investors started to rationalize the move with the downgraded outlook for growth and inflation and for the expectations that the ECB will not continue the rapid monetary tightening. Yet truth be told, the euro has been moving higher the past two weeks on those expectations and ignored all the ongoing instability and the debt crisis. On Friday the focus will remain on the euro’s move and how much correction does it still need as the currency now returns to hover in a Greek-centric-mode until next week’s Ecofin meeting. Investors will keep eyeing the Greek developments especially as the German lower house is expected to draft the guidelines accepted for Merkel and the finance minister to discuss as part of the Greek aid. Yet all in all, the volatility will remain high. From Germany we have the final CPI estimate for May at 06:00 GMT and expected unrevised at 2.4% annual gain in EU harmonized terms and with 0.2% monthly drop. From the United States we await the slightly effecting import price index at 12:30 and expected down 0.7% in May from 2.2% rise. As for at 18:00 GMT we have the Monthly Budget Statement for May and expected with a widening deficit to 150 billion from 135.9 billion. The volatility is to be seen with the end of the week trading and after the strong move on Thursday. Investors will also be cautious as the market opens to many banking holidays in Europe and ahead of the Ecofin meeting that is expected to discuss the second Greek bailout and accordingly the EUR/USD might continue to fluctuate heavily and even with the euro’s losses we still see overall room for gains. 