Euro Plunges on Trichet

The dollar rallied sharply against the euro in New York trading, rebounding from 1.5908 to beneath the 1.57-level at 1.5683. Ahead of a long weekend holiday in the US, traders digested a barrage of economic events earlier in the session prompting a sharp reversal in the euro from its 2 ½-month highs, falling by over 2 big figures.

The closely watched US labor report was largely inline with expectations, with the June non-farm payrolls slightly above forecast at -62k, from -49k. Meanwhile, the unemployment rate in June was higher than expected at 5.5% and unchanged from the previous month. Despite further losses in non-farm payrolls, the dollar found some respite since markets were preparing for an even greater loss of jobs following yesterday's unexpectedly disappointing ADP private-sector payrolls report, which declined by 79k. The June non-manufacturing ISM report missed consensus estimates, dipping beneath the key 50-level which distinguishes between contraction and expansion, to 48.2 versus calls for a smaller decline to 51.0 from 51.7.

Euro Plunges

The euro posted steep losses following ECB President Trichet's press conference, falling by over two big figures to 1.5683. The European Central Bank, as expected, hiked rates by 25-basis points to 4.25%. However, the subsequent press conference by Bank President Trichet offered little hint as to whether any additional rate hikes can be anticipated. He said that, “The monetary policy stance following today's decision will contribute to achieving our objective”, while emphasizing that the Bank has no bias on future decisions. Trichet said that rate increase was necessary adding that the Eurozone is experiencing moderate but ongoing growth.

The economic releases from the Eurozone overnight were mixed, with retail sales sharply higher than anticipated while non-manufacturing PMI disappointed consensus estimates. Retail sales reversed from negative prior readings, increasing by 1.2% compared with -0.6% a month earlier and up 0.2% versus -2.9% in the previous year.

Traders focused more on the less hawkish comments from Trichet, tempering expectations for additional policy tightening despite recent record high inflation reports. Accordingly, the euro plunged toward the 1.57-handle, with support seen at 1.5675, backed by 1.5640 and 1.56.

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Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

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