Euro Pulls Back from Resistance

Declines Likely Ahead of ECB Rate Decision

The euro fell versus all of the major currencies on Friday, despite the fact data showed that retail sales growth in the Euro-zone actually rose 0.6 percent during the month of November. However, it is important to note that the annual rate was still negative for the sixth straight month at -1.5 percent, indicating that the economic situation remains dour.

When taking this into considering with the decline in Euro-zone CPI estimates below the European Central Bank’s 2.0 percent target, steady increases in unemployment, and increasingly pessimistic consumer and business confidence, it seems increasingly likely that the central bank will do as the market’s expect: cut interest rates on January 15 by 50 basis points to 2.00 percent to match the 2005 record low.

This easily leaves the 7:45 ET announcement as one of the most important pieces of event risk next week, but traders will also have to look out for comments by ECB President Jean-Claude Trichet during his post-meeting press conference at 8:30 ET. Mr. Trichet is one of the most opinionated central bank chiefs around, and suggestions that the ECB will continue to cut rates have the potential to lead the euro far lower. On the other hand, if the ECB goes the route of the BOE and signals that they may leave rates unchanged during their next meeting, the currency could actually rally.

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