One gets the sense that today could have been a lot worse for the markets than it ended up. Stocks fell sharply as US retail sales fell 2.7%, a sign of a deep and prolonged recession as the savings consumers felt at the gas pump were not put back into other shopkeepers’ tills.
That news, combined with an S&P downgrade for Greece sent EUR/USD and EUR/JPY skidding at mid-morning but EUR/USD managed to hang onto key 1.3080 support while EUR/JPY fell all the way to 166.60 befoe stabilizing and closing back above 117.00.
All eyes will be on the ECB tomorrow moring. A 50 rate cut is fully expected, but as ever, focus will be on the press conference as the market tries to get a sense of what’s next. Trichet crossed up the market badly in December by suggesting the Bank could pause in December before crumbling economic data and renewed pressure on the banking system forced him to reverse course. I suspect we will hear a lot on Thursday about “never pre-judging” next steps…EUR/USD heads out at 1.3175. Offers are eyed at 1.3190/00 (small buy stops are asbove). More offers are at 1.3250/60. Beware a little “sell-the-rumor/buy-the-fact” after the ECB if they cut 50 bp. The market has come a long way in the last week.
