That has been in the back of my mind too, but from a technical perspective, the chart looks like a continuation. I don't think Trichet will cut unless there is a clear sign of inflation abating, which I don't see happening. If anything, I think euro weakness will come from slowing Eurozone growth rather than rate cuts especially in the context of rising commodity prices. I also think that the dynamics of the EUR/USD trade have changed. Instead of trading based on nominal exchange rates i.e dollar strengthens when inflation rises because the market expects that the Fed will raise rates to curb inflation. I think EUR/USD is trading based on real exchange rates i.e dollar weakens on higher inflation because the market does not think that the Fed will raise rates to curb inflation. dynamics should stay this way until the Fed signals otherwise. Last week when CPI came in higher than expected, EUR/USD pulled back, then went right back up.Quote from Ivanovich:
I know I'm probably one of the few thinking it, but there is a growing chorus of voices that gets louder and louder in regards to the ECB having to cut. Thompson noted a poll where 25 out of 30 economists now believe the ECB will have to begin cutting as early as June.
As soon as this comes to play, the Euro is going to drop hard. But before then...who knows?
Quote from Ivanovich:
I know I'm probably one of the few thinking it, but there is a growing chorus of voices that gets louder and louder in regards to the ECB having to cut. Thompson noted a poll where 25 out of 30 economists now believe the ECB will have to begin cutting as early as June.
As soon as this comes to play, the Euro is going to drop hard. But before then...who knows?