Daily Reports FX Greece 2nd October 2008

publication date: Oct 2, 2008

Will Trichet “Save” Euros Fate or is it All Doom and Gloom?

The Senate has spoken...the vote was positive this time, as markets already priced in and now it’s up to the House on Friday to continue the matter further. The market reaction at the news was positive, however it didn’t last long as there is still uncertainty about the economic future.

The economic calendar today is almost empty, with only crucial event today’s rate decision by ECB. Analysts predict that bank will leave rates unchanged; however Trichets rhetoric will possibly change from neutral to easing. It is believed that due to the latest economic developments, Trichet will have to acknowledge that Euro zone is not immune to the economic crisis and it might need a rate cut after all. The fact that inflation shows moderation in Germany and other European countries, together with slowing growth might be the catalyst for the banks change of heart!
Whatever today’s outcome one thing is for sure: volatility will remain massive and trading will be choppy and erratic. Euro is at a make or break point as it holds still the 1.38 where a six year uptrend line lies. There are still hopes for euro bulls that it will keep this level and correct from there towards 1.40. However, today will certainly be the day to see Euros performance against the greenback and other currencies and if the downside move persists we might have important change in trends.
EUR/USD broke important support levels at 1.39, printing new multi year low at 1.3850 at the time of writing. The pair is trading heavily and is clearly on the downside move but it will be crucial to watch how it reacts after the New York open. Next support level to watch for the pair lies at 1.38 ahead of 1.3780.

GBP/USD is trading still on the defensive and a clear break of 1.7630 will open way towards 1.75. The fact that the pair cannot correct above 1.79 is definitely negative and only a break of 1.7920 will alter our dovish stance.

Let’s see what Mr. Trichet will have to say for himself and what the markets will tell him back! Watch the Q&A after his speech, because today’s questions will be no doubt about Euros fall and rate outlook, as the whole world wants to know, where we are heading next?