Forex Signal (Thu, August 5 2010, 7:45am NY Time EDT) - EU ECB Interest Rate

Henry Liu

Former FPA Special Consultant
ECB (European Central Bank) will be rendering its rate decision today, it is widely believed that ECB will keep current rate unchanged. Here's the forecast:

7:45am (NY Time) EU ECB Rate Decision Forecast 1.00% Previous 1.00%

The Trade Plan
ECB rate decision comes in two part, the first one is the 7:45am rate announcement followed by the 8:30am Press Conference where ECB chief Trichet issues the official statement on this rate decision. Since it is extremely unlikely to get a surprise from ECB, there is usually no volatility following this release, we should focus on the actual Trichet's speech in 45 minutes.

The Market
ECB (European Central Bank) is likely to once again leave its minimum bid rate at 1.00% or unchanged this month. The majority of analysts agree (all 51 of them surveyed by Bloomberg) to this sentiment as according to ECB, it is will keep rates unchaged until 2011 at the very least.

Moreover, according to Credit Suisse Overnight Swap Index, there is zero percent of chance for ECB to hike rates during this meeting.

With Euro Zone still remains under pressure and public scrutiny over the recent sovereign debit concerns, inflationary pressure remaining somewhat subdued, unemployment at record highs, there is just no reason for ECB to hike interest rate at this point.

Additional Thoughts
Considering that ECB is not in the habit of surprising the market because any surprise on the world’s most traded currency pair (EUR/USD) would upset economy, therefore I expected everything to be released as expected… The real mover will be the press conference hosted at 8:30am (in 45 minutes) by ECB Trichet, which may shed some new light over ECB’s monetary policy.

Of course, I suggest that we stick around during the release just in case ECB decides to surprise the market, but most likely we won’t see much of a market volatility…

Pre-news Consideration
Growing amount of analysts are looking for ECB to move towards resuming withdrawing its stimulus and returning back to exit strategy. Market could be looking at this announcement with mixed feelings. I'd warn to stay out until we get some clarification from Trichet's Press Conference.

Historical Chart and Data for ECB Interest Rate.


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