Tuesday, August 16, 2011

Which way for EUR/USD?

I think that due to no immediate support from Merkozy today, it is time for ECB to fire the bazooka. I think that Mr. Trichet will reverse a hike or two. It was unnecessary and has stifled the growth in Eurozone, bringing it to a grinding halt in Q2. As soon as this happens it will remove the attractiveness of Euro vs Dollar in terms of interest rate, and therefore will weigh on the pair.  Based on this EUR/USD will fall to 1.40 very quickly. I think that ECB will not wait for their next meeting to do this, as the market will force their hand in the next week or so. They very rarely act in between the meetings, but considering the German and French Q2 GDP data, the urgency is real. They have to come to their senses and catch the economy before it falls into recession.
FED will answer with their own cannon shot on this side of the pond in the form of another round of QE. This will hold the EUR/USD fall at that time. 1.40 - 1.45 range will be with us for a while.

What do you think??

No comments:

Post a Comment