The ECB is expected to raise interest rates in a few hours, this got me thinking about my EUR.USD positions. Here’s a EUR.USD 12 month chart.
Press and Popular Sentiment:
The American press (Example 1, Example 2) has been reporting widely and loudly over the last week that the ECB and Jean-Claude Trichet will be raising the lending refi rate to 1,5% from 1,25%. What I find interesting is that this is less headline news here in France. I’m curious why the American financial press finds this more important than the European Press. Of course I’m generalising widely! The ECB also rejects the notion that Greece is having impact on current policy decisions.
Politics and Debt
This is more complicated obviously, Europeans are aligned in their interests to protect social and state benefits. They have especially strong links with the media and banking sectors. I’m watching Italy at 120% GDP with interest. Moody’s Portugese downgrade to Junk, and the Greek debacle will likely bring mini-shock after mini-shock to the political elite here over the coming months and this can’t bear well for the Euro. The Moody’s downgrade continues to cause frustration and the type of response I see look roughly translated like this: The Moody’s rating downgrade adds more uncertainty, complicates a difficult problem, and take away transparency. I tend to disagree… What’s interesting is the ECB’s response. The ECB has commited ‘itself’ to providing Portugal liquidity. Which I translate as giving Moody’s the finger.
Inflation and Interest Rates
So the ECB is raising rates, and Bernanke is holding off until the elections… Eurozone inflation is reported as 2,7% from Eurostat. The US inflation is reported at 3.6% (CPI release on June 15th. What might this mean for the Euro if the Eurozone manages it’s inflation more agressively than the US? I wish I knew, but I think there’s a clue here. Or possibly there’s something I don’t yet understand. If Inflation is a full percent higher in the US, to keep this simple, won’t we see a direct and progressive impact on the value of the dollar?
(This is a great restaurant Le Bistrot de Lolotte, if you have a chance!)
So on the opening we’ve seen Portugal sheltered and decent ADP job numbers. The market’s responding well, and the Euro is climbing… I’m still looking for resistance at 1.436ish and a pullback to 1.425ish for the moment she’s following the market higher on strength and looking to blow right bye 1,436… hmm