fundamental alert

Euro Teeters Above Support at 1.33 as Odds Remain in Favor of ECB Rate Cut This Week

Monday, 12 January 2009 23:38:23 GMT  |  Terri Belkas, Currency Strategist

The euro fell versus the US dollar and Japanese yen on Monday, but managed to hold up against the relatively weak British pound and commodity dollars. Focusing on EUR/USD, key support looms just below at the 61.8 percent retracement level of the rally from 1.2422-1.4720 at 1.3301, and with no key economic indicators due to be released from the Euro-zone over the next two days, it will be important to watch where price trades relative to support. Indeed, if EUR/USD breaks below 1.33, the pair will only find another layer of significant support at 1.2915 - 1.3000.

As I mentioned in the US dollar section, risk sentiment remains one of the bigger drivers of price action, so where EUR/USD goes from here may depend more on demand for safe-haven assets like the greenback. From a fundamental perspective, though, downside risks linger for the euro as the European Central Bank is expected to cut interest rates on January 15 by 50 basis points to 2.00 percent to match the 2005 record low. This easily leaves the 7:45 ET announcement as one of the most important pieces of event risk next week, but traders will also have to look out for comments by ECB President Jean-Claude Trichet during his post-meeting press conference at 8:30 ET. Mr. 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. On the other hand, if the ECB goes the route of the BOE and signals that they may leave rates unchanged during their next meeting, the currency could actually rally.

Related Article: Top Forex Trades for 2009


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