The single current could not come over 1.49 again trading around 1.48 versus the greenback waiting for the ECB interest rate decision which is widely expected to be unchanged at 1.25% after raising it by .25% last meeting but God willing, the market will be closely watching for the Trichet's press conference after the ECB meeting next Thursday waiting for the mantra which is hinting to a close interest rate hiking decision which can be repeated again saying that strong vigilance is warranted for monitoring the prices developments and the ECB is ready to take what's necessary to anchor the prices rising and to restore prices stability over the medium term but in the case of not saying that the single currency can come under pressure and this is also not away from the market expectations too as the ECB president has said in the recent press conference following the interest rate hiking in April that it is not an action of series to be taken and it is left to the development of the inflation which is still looking heading up as what has been seen in the flash figure of April EU CPI which has risen to 2.8% yearly from 2.7% in March and 2.4% in February and so, he is expected to stress again on the need for avoiding a second round effect of inflation pressure and he is expected also to mention again the need of taking the financial measures for reducing the deficit of the debt ailing economies in the Euro area which can suffer from the implications of fighting the inflation by hiking the interest rate as it should put more weights on them as this will increase the cost of repaying their debts driving up the yields of their new issuance too which can weakening their creditability which is worrying the market and weighing negatively on the Euro and its backed securities.
The single currency was supported recently by this interest rate outlook differential versus the greenback which has been hit by the Fed's recent meeting and Ben Bernenke press conference which did not come with new to the market concerning the US economy as the Fed is still appreciating the growth down side risks impacts on the labor and the housing market which is still depressed downplaying the inflation upside risks which can be transitory with no impact on the underlining inflation over the long term which shows the readiness of the Fed for having longest possible period of easing enduring coming inflation pressure from the rising of the commodities and energy prices which can give rooms for the greenback to fall with no expected action from the fed soon for containing the inflation underpinning the greenback.
So, God willing, the market focusing will be turning this week on the US labor market which is taking most of the Fed's consideration capping it from taking tightening steps by its current gradual pace as we have seen last Thursday dramatical rising of the US weekly initial jobless claim to 429k from 404k a week earlier while it was expected to ease to 390k and we are wait today for April ADP non-farm employment change to be 200k from 201k in March and also by the end of the week for April US labor report to have decreasing of US non-farm payroll of April to 183k from 216k in March keeping the unemployment rate at 8.8% as it was in March.
Kind Regards
FX Market Strategist
Walid Salah El Din
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