Home > Uncategorized > EUR/USD Soaring – Market Commentary May 3, 2012

EUR/USD Soaring – Market Commentary May 3, 2012

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EUR/USD Soaring 
May 3, 2012  Market Commentary

The European Central Bank’s monetary policy announcement was the main focus this morning and rightly so since the surprise lack of dovishness from Draghi sent the EUR/USD soaring.

The strength of the euro had a lot to do with market expectations. Going into the ECB meeting, most investors expected the central bank to suggest that a rate cut in June is possible but instead Draghi said rate cuts were not even discussed in the meeting.

This forced EUR/USD traders to cover their shorts, sending the currency pair sharply higher. Expectations are extremely important and the sustainability of gains in the EUR/USD will hinge upon expectations for another round of Quantitative Easing from the Federal Reserve.

Unlike the ECB, the Fed’s door to more stimulus is wide open but they aren’t willing to walk through unless the labor market worsens. For this reason, Friday’s non-farm payrolls report will be very important to the outlook of the EUR/USD.

Reading:
The European Central Bank, Second Edition
The European Central Bank: Credibility, Transparency, and Centralization (CESifo Book Series)  

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