It is a day for the range trader. buy low sell high. Euro stuck between 1.4360 and 1.4420, a 60 pips range.
Trichet spoke today at the EU parliament, he stopped short of using the word "Vigilence". He said "alert". He showed himself to be a true inflation fighter. And ECB distinctly separates monetary policy from the credit crisis. Hence, looking forward ECB is likely to maintain rate at 4% if not hike.
While USD being in a election year, would likely keep cutting rate. If the economy data worsens, the cut would morph into 50bp. 3.5% is the bottom now. However 2.5 to 3% is more likely.
Hence interest rate parity is definitely to the advantage of Euro and GBP. While Yen is likely to strengthen towards 110.
Today, the bias is for Euro to test the bottom on the range, now at 1.4381.
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