The EUR/USD moved strongly to the downside on Thursday after Trichet’s press conference as he refrained from the phrase “strong vigilance” signaling postponed rate hikes beyond June.
Investors have been very hawkish on the ECB and expected a rate hike as soon as next month after inflation leaped to 2.8% in April and considering their stance on inflation, they surely expected much from Trichet.
Trichet instead said the ECB will continue to monitor very closely the developments while keeping the door open for more tightening by saying inflation pressures are to the upside and the main aim is to ensure price stability.
With Trichet playing down the odds for a rate hike next month the euro lost the upside momentum and the dollar rallied with the rising pressures and tension in the market and increased risk aversion which focus on slowing growth signs.
The market now shifts the focus to growth and more signs of slowing recovery. The US weekly jobless claims added to the jitters as they came worse than expected and following the less than expected job gains in the private sector according to the ADP the market shifted negative to the outlook for the jobs report on Friday.
We can see the downbeat sentiment in the market and signs of slowing recovery. The unexpected strong drop in German factory orders in March reported on Thursday was very negative on the euro and on the market and the sequel will be reported on Friday.
Germany will release March industrial production at 10:00 GMT and expected with 0.5% rise following 1.6% to an annual 10.3% from 14.8%.
Still, the focus on Friday will be on the United States and the infamous jobs report. The non-farm payrolls is due at 12:30 GMT and is expected to show the U.S. economy added 196 thousand jobs during the month of April compared with the previous 216 thousand jobs.
Unemployment rate during the month of April is expected to settle at 8.8% while the yearly average hourly earnings index is expected to rise by 1.7%.
If we have weak job numbers the risk aversion will extend and the downside movement for the EUR/USD will be eminent. The dollar now is on the rise and only a very positive number will help the pair recover on a strong return to the risk appetite. Nevertheless, the odds are seemingly favoring the dollar now as the euro unwinds some of the June rate hike bets favoring the dollar in most cases and even with a very strong jobs number which is also not expected in the market as the sentiment is turning bearish.
Originally posted here
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