Shutterstock photo
Markets

EUR/USD Sinks on US Trade and Trichet

Shutterstock photo

Shutterstock photo

This morning's mixed U.S. economic reports played second fiddle to the ECB President Trichet's post monetary policy meeting press conference. EUR/USD bulls were sorely disappointed when Trichet said uncertainty in the market was unusually high. The number of times that he used the words "downside risks" in his statement reflects his degree of concern about the outlook for the Eurozone economy and drove the EUR/USD below 1.40. He used the words "downside risks" 2 times more thanAugust. Even though Trichet expects inflation to remain elevated and above 2 percent, he no longer sees inflation risks to the upside and the real killer for the euro was the downgraded GDP forecasts. The ECB now expects the region to grow by 1.4 to 1.8 percent, down from a prior forecast of 1.5 to 2.3 percent. The tone of Trichet's press conference makes crystal clear that only is he done with raising interest rates but the central bank as a whole has now moved to a more dovish stance. The ECB continues to provide unlimited liquidity and Mario Draghi takes over on November 1st, investors will be looking for a rate cut if there is further deterioration in the Eurozone economy. The era of tightening at the ECB is over and it may be some time before rates are lifted again. Having already broken below 1.40, the EUR/USD is now targeting its July low of 1.3837.

Meanwhile across the Atlantic, a better than expected trade balance report was offset by a rise in jobless claims. The U.S. trade deficit narrowed to -$44.8B from -$53.1B in the month of July thanks in large part to the weakness of the U.S. dollar. Exports rose $6.2B while imports fell $0.5B. The dollar driven improvement in trade explains why other central banks are so worried about strength in their own currencies. Jobless claims ticked up to 414k from 412k, which is not terribly damaging for the dollar but as long as claims remains above 400k, the U.S. economy is still losing more jobs than it is making. Up North, Canada also saw an improvement in trade with their deficit narrowing to -$0.75B from -$1.37B in July. Like the U.S., stronger trade activity was driven by higher exports but imports also increased due to demand for automotive and energy products.

@import url(/css/cuteeditor.css);

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

ForEx

Latest Markets Videos