EUR/USD Daily Fundamental Analysis for May 05, 2011

The EUR/USD regained the bullish momentum to move to the highest in 17 months on future monetary tightening and speculation ahead of Thursday rate decision.

Europe’s common currencies flirted with $1.50 areas ahead of the rate decision as investors expect Trichet to signal further rate increases in the press conference tomorrow. The euro is trading at the highest since December 2009 against greenback on rate bets as the market is very hawkish on the ECB and that might turn to be a disappointment on Thursday.

The euro was bolstered with steady sectors expansion according to the composite PMI where the manufacturing sector offset the slowing expansion for services, which with retail sales, dropped on rising price pressures and inflation, more reason for the vigilant ECB tightening.

We saw support as well from Portugal’s reached a deal on a three-year 78 billion euro loan package that started to ease woes over possible fiscal problems and whether it was going to prevent the ECB from acting on inflation.

The focus for Thursday is predominantly on the ECB and particularly Trichet. The ECB will announce rates at 11:45 GMT and widely expected steady at 1.25%. The focus will be Trichet’s press conference following the decision at 12:30 GMT. We can see how the market perceives the ECB and it is with a very hawkish eye, the market is looking for the magic word “vigilance” to signal coming rate moves as soon as June and maybe July and the absence of such a hawkish phrase will send the euro strongly lower and other wise we see the euro breaking through $1.50 strongly.

This will be our main focus for the pair and the movement will be very heavy at the time of the press conference. The lack of enough hawkishness from the ECB will trigger the sell-off and a stronger dollar and shift the focus to weak job figures and slowing recovery.

Other news on Thursday start with the German Factory orders at 10:00 GMT for March and expected with 0.6% rise following 2.4% rise yet the focus will be on the ECB.

At 12:30 GMT the U.S economy will release the weekly initial claims numbers, where the number of people filing for first-time claims for state unemployment insurance has reached 429 thousand after the APD turned to be lackluster for the market the weak figures will add to the fears in the market over the outlook for growth.

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