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Euro Remains Under Pressure Ahead of ECB Rate Decision

Euro Remains Under Pressure Ahead of ECB Rate Decision

2010-05-05 16:05:00
Michael Wright, Currency Analyst
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Fundamental Outlook
The European Central Bank is widely expected to keep their benchmark interest rate unchanged at 1.00% amid the brewing sovereign debt crisis. Policy makers are also unlikely to remove stimulus measures until the crisis is over in order to aid governments who are slashing spending to cut their deficits. Ahead of tomorrow’s release, inventors are weighing in a zero percent chance that the central bank will increase rates twenty five basis points, according to the Credit Suisse Overnight index swaps. During their semi-annual report, the European Committee raised its 2010 GDP forecast 0.9% from 0.7% as European companies step up their output to meet reviving global demand even as domestic consumption is static. At the same time, the European Union lowered its deficit forecast to 6.6% from 6.9%, and went onto say that the economy faces unusual impediments and significant headwinds.

It appears to be almost certain that rates will be left on hold following the Euro-Zone inflation estimate for April which hinted that prices rose at an annual pace of 1.5%, staying comfortably below ECB’s target of 2%. Indeed, growth has been tepid at best in the euro-area and with the onset of the Greek debt crisis, the ECB has few tools at its disposal to stop the region from slipping further. Adding on further pressure, Moody’s investor services said that it may cut its rating on Portugal for the first time as the country tries to reduce its deficit and revive economic growth. In Spain, the country’s first quarter unemployment rate jumped to 20.06% as the government fails to restructure its economy. In all, central bank President Jean-Claude Trichet’s post-announcement press conference is likely to stay firmly focused on issues related to the Greece, Portugal, and Spain.

Related articles:

Euro Extends Two Day Nose Dive Amid Greek Debt Contagion Fears, British Pound Halts Three Day Decline

Technical Outlook


EUR/USD
eur05.05

EUR/USD: Taking a look at the 10 year chart, the pair looks to have broken below an eight year rising trend, and focus now turns to the 138.2% Fibonacci projection at 1.2564. It is noteworthy that the pair has tumbled into oversold territories, and short term bounce may be likely in the near term. However , traders should not discount a period of consolidation before we see further declines.


For More Technical Analysis Visit the DailyFX Technical Page


Written by Michael Wright, Daily FX Research
Questions? Comments? Email me at instructor@dailyfx.com


 

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