Few in the market can have expected the ECB president to use the term “strong vigilance” in his remarks. While this is seen as tantamount to saying that a rise in rates is imminent, it begs the question: why, in that case, weren’t rates raise immediately?
EUR/USD bears (order books on Wednesday were said to be alarmingly skewed to the downside) with deep pockets might draw comfort from the failure of the market to breach 1.40 during the Trichet after-party, but an eventual break of the level might be messy.
We highlighted the sterling bear case last week and almost predictably the market broke through the high of last November to hit levels not seen for more than a year on the back of rumoured buying by sovereign wealth funds. BNP Paribas’ advice last week was to sell a breach of 1.6300 with a 1.6390 stop – a trade that would be showing a marginal profit so far – but the bank has appeared to step away from the immediate bear trade in the light of this week’s positive PMI figures (apart from Thursday’s not-so-rosy services number) saying early on Thursday that: “Sterling is expected to gain some further near-term support from this PMI data and we would expect GBP/USD to extend the current recovery through yesterday’s 1.6325