Comments Trichet frustrate Euro

04-18-2009 10:16

The Euro fell to 1.3056; a month low, after dovish remarks by Jean-Claude Trichet, president of the European Central Bank. He confirmed the central bank’s vision that extra non-standard actions and additional easing are necessary. The comments proved the outlook by the market participants that a 25 bps rate cut would be discussed during their following two policy gatherings. The eurozone trade balance deficit contracted from -10.9 billion to -2 billion as imports dropped at faster pace than exports. The present recession could deteriorate further as demand from its major trading partners declines.

ECB: cut rates or embark on quantitative easing measures

It seems that the ECB is not able to come to consensus on whether to focus on quantitative easing actions or to cut rates once more. President Trichet negated this indecisiveness and stated that the committee’s vision is unanimously. Still, recent remarks by Axel Weber, Governing Council of the ECB, were cautious against reducing rates below 1% and acquiring debt seems to argue with some of his peers. George Provopoulos and Athanasios Orphanides have suggested additional easing and extra non-conventional efforts which indicate the expected direction of the central bank.

UK housing market deteriorates further

Rising risk aversion caused the sterling to fall as concerns increase that today’s earnings reports for US financial companies could turn out gloomy. Last night the Council of Mortgage Lenders stated that falling UK house prices have dragged 900,000 mortgage borrowers into negative equity. The housing market declines further and it is possible that the attempts by the Bank of England to add liquidity to the market will not be sufficient. This could reduce upside potential and remain the GBP/ USD bound, while longer-term signs still indicate to bullish momentum. Support at the 20-Day SMA at 1.4662 is possible and this could result in the pair trading between 1.4600 – 1.5000 on the short-term until economic stability becomes more secure.

US sentiment stimulated

During overnight trading the dollar found support as risk aversion flows obtained momentum and European concerns increase. The University of Michigan consumer confidence gauge is the only important economic release today and is expected to increase from 57.3 to 58.5. Sentiment has been boosted by the consistent attempts by the US administration to improve conditions and due to the US economy indicating that it is stabilizing. Ben Bernanke, chairman of the Fed, will give a speech today in Washington DC and his remarks are always valuable. The GE and Citibank earnings could have the most market moving potential and should these financial companies follow the example of other positive financial results, it may lead to improving risk appetite and cause the dollar to fall. Still, if the financial giants report negative results due to the credit crisis, the greenback could find more support.