WHAT IS THE RISK FOR THE ECB?
In yesterday’s Daily Currency Focus, we said that the 1.45 level was significant support in the EUR/USD. A break below that level would have opened the door for a move down to 1.42. Even though the EUR/USD did take out the support to hit an intraday low of 1.4385, what was more impressive was the currency pair’s reversal. The close back near today’s high reflects strength rather than weakness. The European Central Bank interest rate decision is the wildcard tomorrow. The recent decline in the Euro suggests that the market is expecting the ECB to be dovish despite their clearly hawkish rhetoric. Traders are looking at the price of oil and the recent Eurozone economic data and drawing the conclusion that the ECB can no longer be stubbornly hawkish. Second quarter growth and retail sales were both weaker than expect. Although service sector PMI was revised higher, it still remains in contractionary territory. Keeping interest rates on hold at 4.25 percent is a given, but Euro bears may be
