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Euro Rallies After ECB Keeps Rates on Hold at 0.75%

Euro Rallies After ECB Keeps Rates on Hold at 0.75%

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: EUR European Central Bank Rate Decision > Main refinancing rate on hold at 0.75% > EURUSD BULLISH

The European Central Bank kept its main refinancing rate on hold at 0.75%, as expected, amid a deepening European sovereign debt crisis. Whereas European Central Bank President Mario Draghi promised measures last week to help stem the crisis, little has materialized thus far, as market participants away the much anticipated press conference at 08:30 EDT /12:30 GMT today.

Accordingly, because there was no rate cut, it appears that investors are covering their Euro shorts as well as repositioning themselves for a major bond buying program to be announced during the European Central Bank’s press conference. Speculation has arisen that if the European Central Bank kept rates on hold, it would be a sign that further nonstandard measures were on the verge of being announced today. Thus far, we are in wait-and-see mode.

EURUSD 1-minute Chart: August 2, 2012

Euro_Rallies_After_ECB_Keeps_Rates_on_Hold_at_075_body_Picture_3.png, Euro Rallies After ECB Keeps Rates on Hold at 0.75%

Charts Created using Marketscope – Prepared by Christopher Vecchio

Still, in response to the rate decision, in which the Credit Suisse Overnight Index Swaps were pricing in an 82% chance of a 25-basis point rate cut today (from 0.75% to 0.50%), the Euro has climbed across the board. The EURUSD jumped from 1.2262 ahead of the release to as high as 1.2347 soon after, and was trading at 1.2339, at the time this report was written. Similar price action was observed in the EURJPY, which jumped from 95.90 to as high as 96.65, before pulling back to 96.52.

To follow developments from the European Central Bank’s press conference, visit DailyFX’s FX squawk box, the Real Time Forex News Feed.

--- Written by Christopher Vecchio, Currency Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.