Mid-Day Report: Euro & Sterling Recovers after ECB & BoE on Hold

After initial weakness today, both Euro and Sterling regain some grounds. ECB is on hold at 4.00% today as markets originally expected. Trichet maintains his usual hawkish tone in the following press conference by emphasizing that the central bank's monetary policy was designed to deliver medium-term price stability and added that inflation will stay high "for a rather protracted period." While Trichet acknowledged the downside risks to growth, he still maintained an upbeat tone of the economy and describe it as having " sound fundamentals and does not suffer from major imbalances." Somehow, this is a disappointment to economists who are looking something dovish after recent weakness in economy data.

BoE left rates unchanged at 5.00%, which was as expected by markets before the weak economic data released this week. No statement was released and markets will look into the minutes to be released on May 21 for details including vote split.

Data released in US saw jobless claims dropped back from 383k to 365k. WHole sale inventories dropped -0.1% in Mar comparing to expectation of 0.5%. Canadian housing starts dropped more than expected to 213.9k in Apr. Data from Eurozone include Germany trade surplus that is steady at 16.7b. Industrial production, though, slowed more than expected to 4.7% yoy in March. Released overnight, New Zealand Q1 employment dropped sharply by -1.3% qoq with unemployment rate edged higher to 3.6%. Australian unemployment rate climbed from 4.1% to 4.2% in Apr even though job gains beat expectation by growing 25.4k. Swiss unemployment rate is unchanged at 2.6%.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5327; (P) 1.5433; (R1) 1.5499; More

EUR/USD fall was contained at 1.5284 today. Subsequent recovery and break of 1.5410 minor resistance indicates that an intraday bottom is in place and turns outlook neutral first. Further consolidation could be seen but still, another fall is expected as long as EUR/USD stays below 1.5594 resistance. Below 1.5283 again will encourage decline towards next short term target of 1.4966 cluster support (61.8% retracement of 1.4309 to 1.6019 at 1.4962) and probably below.

In the bigger picture, as mentioned before, EUR/USD's rise from 1.4309 should have completed at 1.6019 with a diagonal triangle pattern that started at 1.5342 and with bearish divergence condition in daily MACD and RSI. Firm break of 1.5342 support, which will also have EUR/USD sustaining below 55 days EMA (now at 1.5490) too, will confirm this case and deeper decline should then be seen to 1.4309 and 1.4966 support zone. However, strong rebound from here , followed by break of 1.5594 resistance, will suggest that price actions from 1.6019 is probably just developing into another sideway consolidation. But still, risk is on the downside before sustained break of 1.6019 high.

Forex News Digest

• ECB's Trichet Sees High Uncertainty, Downside Risks To Growth
• ECB's Trichet Says Second-Round Inflation Effects Must Be Avoided
• ECB's Trichet Highlights Vigorous Money, Credit Growth in Euro Area
• Current ECB Monetary Policy Will Deliver Price Stability, Says Trichet
• Morning Market Recap: Euro and Sterling up After BOE, ECB Rate Decisions
• Economists Divided on What U.S. Jobless Claims Say About the Labour Market
• U.S. Initial Jobless Claims Fall 18k to 365k, Continuing Claims Fall 10k
• Financial Times Article Says Europe and U.S. United on Dollar Strength
• Euro Trades Near Eight-Week Low Against Dollar as ECB Sees Growth Risks
• Jim Rogers Says U.S. Dollar Is Poised to Rally, Too Many Investors Bearish
• Canada's Dollar Weakens as April Housing Starts Decline More Than Forecast
• Pound Stays Higher as Bank of England Holds Benchmark Interest Rate at 5%
• Euro May Fall to Fibonacci Chart Level of $1.5230, Tokyo-Mitsubishi Says

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