The Euro has come within 50 pips of its all time record high against the US dollar ahead of the ECB interest rate decision. The latest price action suggest that the the notoriously stubborn ECB President will continue to remain hawkish and express no concern about the level of the currency. Although retail sales have dipped, industrial production and the trade balance is on the rise. The improvement in the trade picture is particularly important because it confirms that the strength of the Euro continues to have only a limited impact on the Eurozone economy.
At the last monetary meeting, Trichet used the words “price stability” 8 times in his Introductory Statement. Although the ECB lowered their growth forecasts at the time, they also upgraded their inflation forecasts, sending a strong message to the markets that interest rates will remain unchanged for some tine. Looking ahead to this interest rate meeting, as long as the tone of the press conference remains the same and price stability is used no less than 8 times, there is a decent chance that the EUR/USD could hit a new all time high.
However should Trichet acknowledge the slowdown in growth, expect the EUR/USD to top out below 1.60 once again.
