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Research Note: September ECB Rate Decision
Brian Dolan, Currency Strategist
Summary outlook: Tomorrow, Sept 3, 2009, at 0745EDT/1145GMT the ECB will likely announce a steady interest rate decision, keeping the repo rate at 1.00%, according to unanimous market forecasts. The focus will then shift to ECB Pres. Trichet's 0830EDT/1230GMT press conference and his update to the Eurozone economic outlook. That, too, may prove to be a non-event, as there has been minimal change to the overall outlook since the last briefing. Recent Eurozone data continues to suggest economic stabilization, but with growth at weak levels and subject to downside risks. Negative inflationary pressures appear to be receding and Trichet will likely sound vindicated on the ECB inflation outlook.
To the extent that Trichet will seek to leave anything more than a status quo impression, we think it may be to stress that significant downside risks remain and that it is too soon to be considering a normalization of monetary policy or the withdrawal of special credit measures. In the current environment of risk sentiment faltering, a more cautious tone from Trichet could put pressure on risky assets, potentially weighing on the JPY-crosses and thus EUR/USD via EUR/JPY.
Trading Strategy: We think the risks favor a generally status quo update from Trichet, which may provide little market reaction. US weekly jobless claims and the US ISM services gauge are likely to trigger a more significant market reaction, but price action will also be colored by Friday's looming US August NFP report. Overall, we think the risks of a further pullback in risk sentiment, as seen in stock market declines, lower commodities, and weaker carry trades (JPY-crosses), continues to dominate, but better than expected US data could reverse the slide. We'll be alert for short squeezes in the JPY-crosses, with Wednesday's hourly highs as the likely trigger. We anticipate a range-bound environment will prevail ahead of Friday's US NFP and we'll look to stock markets for short-term directional signals
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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