Euro Vunerable-For Now

Edited by : NewstraderFX

The key thing for anticipating future ECB moves is that the term "strong vigilance" was removed from the ECB statement. This will likely remove market expectations for a rate hike in July. However, the use of the phrase "still on the accomodative side" indicates another rate hike is in the works for the September meeting, since there's no meeting scheduled for August. What could also drive the EUR/USD lower in the short term is that the 2008 inflation rate forecast was left at 2.0%, coupled with the fact that Fed Funds Futures are pricing in a rate hike in Q4 and that the market sees virtually no chance of a rate cut.Because of the weaker US productivity, higher wages, downwardly revised 2007 US GDP and overall market unease, there's a potential for some correction in equity markets which would also lead to some unwinding of carry trade positions. As EUR/JPY carry trades unwind, the dollar appreciates vs the Euro as it depreciates vs the Yen.