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Thursday, February 22, 2007

Euro Outlook (22nd February 2007)

The EUR/USD opened in Asia around 1.3135 after spending most of Wednesday sidelined while the USD/JPY and JPY crosses hogged all of the market action surrounding the BOJ decision to hike rates. The EUR/USD traded up to 1.3144 in early Asia on the back of EUR/JPY demand, which made a new all-time high at 159.13 before settling between 158.90/159.00 for the balance of the session.

The EUR/USD settled around 1.3130 with very little changing hands in a very quiet session. The market's attention has slightly shifted away from central bank expectations as evidenced by the muted reaction to the higher than expected US CPI data yesterday. The EUR/USD was supported by the rise in the gold price and the unyielding demand for JPY funded carry trades.

There is talk of central banks bids ahead of 1.3100 and central bank sellers lined up ahead of 1.3200. A break below 1.3090 or above 1.3200 is needed to break the lethargic tone of the EUR/USD and most favour a topside break at some stage. German GDP is out later today along with EZ Industrial Orders.

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