eur fundamentals

Euro Consolidates Above 1.2550 as EU Says 'No' to Bailout for Eastern Europe

Monday, 02 March 2009 20:42:11 GMT  |  Terri Belkas, Currency Strategist

The euro fell sharply as soon as the markets opened on Sunday, and subsequently consolidated above 1.2550 for much of the European and US trading session. The release of Euro-zone CPI, which was stronger than expected at 1.2 percent in January didn’t have a major impact on EUR/USD as risk trends were the real drivers of price action in the forex markets. As mentioned above, European Union leaders voted down a request from Hungary for 180 billion euros in aid for the banking systems of Central and Eastern Europe, triggering some risk averse selling in the stock markets.  However, the EU did leave the door open to aid efforts on a country-by-country basis, suggesting that help may eventually be on the way for the nations. For much of the rest of the week, speculation over the end-result of the European Central Bank’s meeting on Thursday could impact the euro, and on a longer-term basis, resistance looms at 1.3000 while support rests at 1.2500. The decline in Euro-zone CPI estimates well below the ECB’s 2.0 percent target, steady increases in unemployment, and increasingly pessimistic consumer and business confidence all suggest that the central bank will cut rates by 50 basis points to 1.50 percent. As a result, the 7:45 ET announcement will garner quite a bit of attention, but traders should also look to Trichet’s post-meeting press conference at 8:30 ET. Trichet is one of the most opinionated central bank chiefs around, and suggestions that the ECB will continue to cut rates have the potential to lead the euro far lower.

Related Article: Euro Weekly Trading Forecast


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