Well I woke up this morning to see the EUR/USD has worked it's way back to the resistance zone around the 1.4020 level which was a little surprising as equities and commodities still remain on a weaker footing. But the answer for why the euro made such a strong move against the dollar became clear after about 30-seconds of research... the ECB has spent the past 6-hours talking the euro back up. Everybody from Trichet to Noyer to Quaden to Ordonez to Weber.
ECB Trichet got the euro party started at 0215 EST with these comments on interest rates:
"Rates are appropriate"
And then Trichet made hawkish comments on monetary policy:
"At the end of the year decline in activity will slow; Have to be prudent; Fiscal credibility needed for confidence"
Within seconds of Trichet's comments hitting the news wires I see the euro pushed up from the 1.3840 level to over the 1.3900 level. And then over the past few hours Trichet's comrades all added comments saying that interest rates are not going lower, Eurozone economic growth was just around the corner, and that there is no deflation in the Eurozone and that inflation should begin growing again.
This was a very concerted effort on part of the ECB to talk the euro back up against the dollar. Why? I have no idea why but it's obvious what they have been doing this morning and as I always say, there's no point for traders to fight against the ECB or Fed when they talk up or talk down their respective currencies because the central banks always get what they want and the big money movers take their cue from these guys.
This morning's price action on the EUR/USD is a perfect example for what kind of power central bank rhetoric holds and how the central bankers can move markets despite what any charts or tech indicators are saying or even how the correlated markets are behaving. When the ECB or Fed says "buy the euro" or "sell the dollar" that's exactly what the market does.
Of course this could all change once Wall St. gets rolling at the bottom of the hour here as we still have a number of key fundamental events and a big Treasury auction at 1300 EST. I expect the volatility and price swings to continue.
EUR/USD key levels--
Upside: 1.4058 / 1.4074 / 1.4097 / 1.4112 / 1.4154
Downside: 1.4001 / 1.3984 / 1.3965 / 1.3932 / 1.3911
-David
ECB Trichet got the euro party started at 0215 EST with these comments on interest rates:
"Rates are appropriate"
And then Trichet made hawkish comments on monetary policy:
"At the end of the year decline in activity will slow; Have to be prudent; Fiscal credibility needed for confidence"
Within seconds of Trichet's comments hitting the news wires I see the euro pushed up from the 1.3840 level to over the 1.3900 level. And then over the past few hours Trichet's comrades all added comments saying that interest rates are not going lower, Eurozone economic growth was just around the corner, and that there is no deflation in the Eurozone and that inflation should begin growing again.
This was a very concerted effort on part of the ECB to talk the euro back up against the dollar. Why? I have no idea why but it's obvious what they have been doing this morning and as I always say, there's no point for traders to fight against the ECB or Fed when they talk up or talk down their respective currencies because the central banks always get what they want and the big money movers take their cue from these guys.
This morning's price action on the EUR/USD is a perfect example for what kind of power central bank rhetoric holds and how the central bankers can move markets despite what any charts or tech indicators are saying or even how the correlated markets are behaving. When the ECB or Fed says "buy the euro" or "sell the dollar" that's exactly what the market does.
Of course this could all change once Wall St. gets rolling at the bottom of the hour here as we still have a number of key fundamental events and a big Treasury auction at 1300 EST. I expect the volatility and price swings to continue.
EUR/USD key levels--
Upside: 1.4058 / 1.4074 / 1.4097 / 1.4112 / 1.4154
Downside: 1.4001 / 1.3984 / 1.3965 / 1.3932 / 1.3911
-David
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