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Euro Hits New All-time High

Forex
Daily FX
Euro Hits New All-time High but Fails to Hold Onto Gains
Monday July 23, 4:46 pm ET
By Kathy Lien, Chief Strategist strategist@dailyfx.com

The Euro climbed to a new record high today in the early Asian trading session, but failed to hold onto its gains. This type of price action should be worrisome for Euro bulls, but we would need to see a close below 1.3780 to turn bearish. This is the last chance that we will hear from ECB officials before they go on their summer holidays. The lack of concern over the past few weeks tells us that they fully intend to raise interest rates to 4.25 percent over the next few months. As recently as this morning, ECB member Papademos pointed out that some EZ countries have raised their growth rates while Stark talked about how the current level of the Euro reflects the strength of the economy.

Next month?s monetary policy meeting will be a teleconference with no scheduled press conference. Although Trichet has warned that holding an impromptu press conference may not be out of the question, we expect him to wait until the September meeting to bring back the words "strong vigilance." At that time, he would be preparing the markets for an October rate hike. Given Trichet?s warning to EU government officials about interfering in ECB monetary policy, unless we see the EUR/USD at 1.45 in August, we do not expect to hear much from Trichet next month. Instead, what could lead to some further Euro selling is this week?s busy data calendar. Tomorrow we are expecting EZ service and manufacturing PMI along with industrial orders and current account. All of these reports are sensitive to exchange rates, which mean that they have decent chance of surprising to the downside.


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