Trichet The Hawk Has Dollar Bulls Running. 1.6000?
Written by A Forex View From Afar on Thursday, January 10, 2008Back To www.TheLFB.com
Traders who listened to Trichet statement have heard his ultra hawkish words, seeing the Euro Zone economy in a strong shape which wasn’t affected by sub-prime.
Markets should listen very well to this line
“The growth of bank loans to the domestic private sector has remained robust in recent months, which may suggest that the supply of credit has not been impacted so far”
The markets are dividend in two camps, one which believes sub-prime is spreading thru Euro land and the other which say that Europe will flourish despite US speeding toward recession.
Since Trichet spoke only about rate hike, spiral inflation, act pre-emptively (this was the most used phrase), inflationist pressures and most importantly Euro-zone reaching its potential GDP rate in Q4, made a lot of traders switch camp.
This big shift was seen in charts, and what is more important, institutional trade desk are starting to realign their position to dollar short euro long.
Don’t get this wrong, there isn’t a big party going on in Europe and the rest of the globe wasn’t invited; downside risk still exist, specially when someone such influencial as Mr. Trichet says that uncertainly in the markets are high and the impact of financial turnover in the real economy is not fully known.
Traders should note that all except one EU members that have a free currency float, increased rates in the last period and still, Trichet warns them about inflation a couple of times.
Poland, Sweden, Czech Republic and Romania hike while Hungary cut interest rates. All these countries showed in the last months, increasing HICP numbers.
Does this look like a measure to reduce some inflationist pressures? To us it does, but it’s probably a temporally method only. None the less, we have been euro Bulls through all of 2007, set our stall out that we are not selling Euros to buy Dollars, and now await the test of 1.5000 and maybe a kiss of the 1.6000 if the Dollar Index breaks 75.00.
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