Profit-takers Hitting Euro ahead of Thursday’s ECB Meeting

The Dollar lost ground against theEuro overnight in Asian trading as investors continued to speculate that theEuropean Central Bank will mention its concerns about inflation in Thursday’spolicy statement. Following the last policy announcement on January 13, theEuro surged from 1.3088 to 1.3383 after the ECB hinted that it was concernedabout inflation.

The Dollar lost ground against theEuro overnight in Asian trading as investors continued to speculate that theEuropean Central Bank will mention its concerns about inflation in Thursday’spolicy statement. Following the last policy announcement on January 13, theEuro surged from 1.3088 to 1.3383 after the ECB hinted that it was concernedabout inflation.

Although slight improvements in theEuro Zone economies and successful bond auctions by debt ridden nations havebeen cited as reasons for the Euro’s current rally, the main reason for theEuro turnaround versus the Dollar was the shift in ECB rhetoric at its Januarymeeting.

In his press conference followingthe last central bank meeting, ECB President Jean Claude Trichet said interestrates will not be raised in the near future; he did bring up this topic,meaning the issue may have been discussed.

Surrounded by climbing money marketrates, and indications from the bond market that interest rate hikeexpectations are rising, all signs are beginning to point toward an ECB ratehike sooner than previously expected. This is occurring despite worries thatproblems in the Euro Zone still exist and could re-emerge at any time.

Trading may be tight and rangeboundtoday as traders await Thursday’s announcement. Expectations are for the ECB tohold interest rates unchanged. Traders will be watching for any commentaryabout inflation as this would be another indication that sentiment is shiftingfrom dovish to hawkish. A statement about inflation is likely to continue toprovide the fuel to push the Euro higher.

Profit-takingappears to be hitting the Euro ahead of the New York opening. Despite the developingweakness, the main uptrend will remain in tact. Long traders may get a littlenervous if the market begins to break under a key Fibonacci level at 1.3744. Atthis time, the upside target is 1.3960.

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James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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