65-pip range through early Europe with a slightly softer EUR as the market takes on board the latest economic forecasts from the leading German think tanks. The numbers were circulating the market last session and this could explain why the EUR is not reacting. Dollar pep was mainly driven by the unwinding of Yen cross longs following firm Japanese data but it was the German forecasts that had the latest impact.
The institutes are looking for 07 growth of 2.4% vs 1.4% in their last report and CPI of 1.8%, down from 2.3%. The bottom line from the latest report is that the German economy is undergoing a strong recovery and that the ECB will tighten policy by a 1/4-point to 4.0% by the middle of the year. EUR/USD dipped from 1.3620 to 1.3560 and is now having a look at the 1.3600 level.
The Dollar was constructive from the open but is clearly lost traction as the European morning paned out. Good demand for EUR/USD in the 1.3560-70 area helped put a base under the market and with further bids touted down to 1.3540 the market will be reluctant to test the bear side again.
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