The Attack of The Central Banks

• faithmight
• September 8th, 2011

It’s always fun when you have a holiday week jam-packed with a slew of central bank announcements. We had scheduled announcements from the RBA, BoJ, Riksbank, BoC, BoE, and the ECB. There was the surprise announcement from the SNB. And the central banks gave us quite a week leaving some market participants feeling like geniuses and others feeling very beat up.

But I want to focus in on the ECB. Just when I was writing about the resiliency of the euro, Trichet comes out today and kills it all. While some economists felt Trichet should have cut interest rates today, the ECB left the status quo. However, ECB President Trichet decimated the euro with a dovish and at times, angry, press conference. And why should he care? It is his last time taking the mic as the ECB President. Next month, the markets will hear from a new leader and that fact alone will not bode well for the euro. All that uncertainty new leadership brings during some of the most tumultous financial times in history. I can’t imagine the euro rallying in this backdrop. Cries for interest rate cuts have already begun. At 1.50%, the ECB has room to move on rates.

Needless to say, my analysis on the $EURGBP didn’t pan out. Not that it was wrong. We saw price find support at the 61.8% Fibonacci retracement level and grind higher. However, price exhausted ahead of 0.8850 as the pair reacted to an almost hawkish BoE. Trichet came in for the kill 4 hours later. The $EURGBP pair is down 140 pips in today’s session to close at the lows of the day.

Tomorrow is a light day for scheduled news releases. And it’s Friday. A perfect storm for anything to happen. As I said yesterday, a close below 0.8750 for the $EURGBP changes my bullish picture entirely. And so it has. With the fundamental picture lining up with today’s technical downside breakout, I am very interested to see what price does in the yellow zone. I can admit a continuation looks like a given. But it’s the end of a very eventful week. Anything can happen.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: EURGBP, euro, FXE

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