ECB Trichet Joins the Chorus - Capping EUR/USD Gains

Last updated 11/17/2009 8:59 AM ET (GMT -5) 7 Comments

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Kathy Lien

Director of Currency Research, GFT

ECB President threw a wrench into the EUR/USD rally when he joined the chorus of central bankers supporting a strong dollar. Unlike the U.S. who really needs a weaker dollar, the Eurozone will really benefit from a stronger one. So far, ECB President Trichet has been comfortable with the strong euro because it has not affected trade materially and instead helps to reduce inflationary pressures. This morning's trade numbers from the Eurozone indicated that the deficit turned into a surplus thanks to the strongest rise in exports in 20 months. If the strong currency was really having a detrimental effect on the export sector, we would not have seen a 5.5 percent increase in foreign demand. Imports also rose by 1.1 percent which suggests that domestic demand is steady as well.

Although Trichet has a vested interest in seeing the dollar rise, he is not immediately concerned about the decline. This morning, the ECB head said he "notes with interest" Bernanke's comments on the dollar and believe its a "very important statement" because "a strong dollar is in the world's interest." According to Trichet, the "euro was not created to become a reserve currency" and to replace the dollar. On monetary policy, interest rates are still appropriate, but Trichet said unconventional steps will be phased out "progressively." The central bank is gearing up for an exit and the closer they get, the more demand there will be for euros instead of dollars.

Comments (7)

Stephan Smith

November 17, 2009 at 09:16 AM ET

That would explain the strengthening of the USD against the EUR. One would think that the best time sell the dollar would be now or sometime when the USD rally is runs its course a little more...because I agree with Kathy. The words of Bernanke and Trichet aren't enough to continue the USD rally. The USD rally will most likely end shortly. I'm seeing that $1.50 EUR/USD price test occurring again.

HayronW

November 17, 2009 at 03:00 PM ET

Hi Kathy,

I am sort of new to Forex trading and have been reading the articles and comments and I have a question about "the dollar".

We talk about the dollar going up or the dollar going down and I am not 100% sure what chart it is to look at. Is this something that GFT or fx360 provides somewhere? Or is there a general symbol I should look up period say on a google or esignal?

I am basically trying to understand the visual relation between the dollar and the different pairs are but I don't know what is meant when there is talk about "the dollar"

Semaj

November 18, 2009 at 07:25 AM ET

If the dollar is the base currency (left) and price is rising then it's dollar strength. If the dollar is the cross currency (right) and price is rising then its dollar weakness. Any pair with the dollar shows strenght/weakness by looking @ multiple pairs and analizing them.

Check out babypips.com for some general info on currncy trading. Good Luck

HayronW

November 18, 2009 at 08:38 AM ET

That's what I assumed before, but I wasn't sure if that was the case or not. its my understanding that with pairs with the dollar is really just showing how the one country is doing compared with the other country. So the Us could be doing great compared to one country but horrible against another country. Which pairs does one really look at then when analyzing the strength/weakness of the dollar?

I have been looking at babypips.com for a few months now...I'm in 13th grade :)

Thanks for your reply Semaj

Semaj

November 18, 2009 at 09:43 AM ET

The majors, gbp, eur, chf, aud, cad, nzd, & jpy. Also the dollar index.

HayronW

November 18, 2009 at 05:10 PM ET

Where do I view the dollar index?

Semaj

November 18, 2009 at 09:21 PM ET

Look for symbol DXYO. You can get futures charts with some brokers, recomended. Real time quotes costs money & delayed feeds are sometimes free. Also @ freestockcharts.com, not real time to my knowledge but can be used for reference to dollar strength/weakness.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.