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Wednesday, December 20, 2006

Euro Outlook (20th December 2006)

With the strong IFO consigned to history, but not quite forgotten, Euro watchers started the day awaiting the latest Trichet press conference. US hedge fund selling in EUR/USD into the 1.3240's, touted as profit-taking, helped cap the topside into early European trading and spot soon eased lower.

However, with the EUR remaining underpinned and the 1.3200 digital expiry today (At the NY cut-off at 15:00 GMT) keeping the downside intact the price bounced off 1.3207. The ECB President largely reiterated his last post-ECB hike statement with Trichet also borrowing from the G7 stance on FX volatility. As a result 1.3200/50 is seen as the short-term comfort band for EUR/USD with dealers noting official support for the pair into 1.3185/90 while central bank sell orders are also tipped on approach to 1.3260/65 should spot rally.

Looking ahead, there is little of significance set for unveiling into the North American session so many will sit and wait to see if those with the might have the propensity to move markets. Orders will again dictate short-term moves but dealers see any such moves as holding little long-term significance.

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