EUR/USD Continues Enjoying Trichet’s Hawkishness

The president of the European Central Bank, Jean-Claude Trichet, continues have a strong and positive impact on the Euro. In another public appearance, Trichet reiterated his tough stance about inflation and continued to communicate a rate hike next week. This saved EUR/USD from losing support.

Trichet spoke at his country, in Paris, and said inflation rates are durably above the price stability target. Though not using his usual code words “strong vigilance”, the repeated hint was clear. So, unless something extreme happens next Thursday, a rate hike is coming to the Euro-zone.

Apart from this April rate hike, hikes of additional 75 basis points are prices by the market until the end of the year. There are speculations that April’s rate hike may be even larger.

EUR/USD recovered from the area of 1.4030, an important support line, and managed climb above 1.4110, close to the levels seen on Friday. Significant resistance appears at 1.4160, followed by a huge cap at 1.4282.

For more technical levels and events, see the EUR/USD Forecast.

The market continues to value the talks about a rate hike from Trichet and his colleagues. Mersch has also been outspoken about this issue.

And the markets tends to quickly forget about the burning issues around the debt crisis. Irish banks are closer to “sharing the burden” of losses with senior bondholders, something that will rock the whole European banking system.

Portuguese yields on ten year notes have already left the 8% mark behind. Ireland got a bailout after its yields passed the 7% mark, and the Portuguese government already collapsed. A senior ECB official, Nowotny, already calls for Portugal to take a bailout, and says its the most logical thing.

Note that hawkish comments from the other side of the Atlantic, from Plosser and from other members of the Federal Reserve, had a similar impact on the US dollar, but the meeting of the US FOMC is due only on April 27th, while the ECB meeting happens next Thursday, April 7th.

Further reading: Chances of QE3 are very slim.