Trichet doesn’t say “Strong Vigilance” and the Euro crumbles

Well the GBP unexpectedly rose their rates to 5.25% today, but surprisingly enough, that wasn’t what got traders moving. It was the unexpectedly dovish tone that Mr. Trichet had when the ECB released their interest rate statement.

The ECB held rates steady at 3.50% which was in line with the consensus. However, Trichet spoke very dovishly about the ECB’s future monetary policy. His famous phrase "strong vigilance" was not included in his statement, which shocked the markets. He had previously been using (or even overusing) that phrase in many of his recent statements which kept traders speculating that the ECB would be boosting interest rates rather soon.

Even Trichet pointed out the fact that he did not use his patented "strong vigilance" phrase, and said that he would "say nothing that would change the expectation by markets that we could do something at the end of the first quarter." The markets had "expected" him to be more hawkish and because he wasn’t, the Euro dropped like a rock!

Coming Up:

US Retail Sales (Overall & Core)
8:30 am ET; 13:30 GMT
(Overall) Previous= 1.0%; Consensus= 0.6%; Forecast Range= 0.3% to 1.1%
(Core) Previous= 1.1%; Consensus= 0.5%; Forecast Range= 0.2% to 0.7%

Chart Analysis:

EUR/USD

The Euro is resting right under 2900 at around 2885. Both stochastics on the daily and 4hr chart are reading oversold so technically speaking, the pair "should" move up. I think if the pair breaks above 2900 it will move to the 50% Fib line at 2920. On the other hand, if the pair can break below its 100 SMA, it will most likely hit its 61% Fib line at 2820. Although the charts don’t really show a move to the downside, the safer trade is to go short if the Euro can break below the 100 SMA and 2850. I’d like to go short at 2845 and target 2820 (50% Fib line) with a stop at 2870 (above the 100 SMA).

Trade Idea:

Short at 2845; Stop loss= 2870; Target= 2820; Target 2= 2800

GBP/USD

Although the Euro dropped, the Cable made a nice gain after the BOE unexpectedly raised rates. The Cable is currently right under its 38% Fib line with both 4hr and daily stochastics trending up. If the pair can break the 38% Fib line, it will probably make it to 9500. On the other hand if the pair makes a big drop and can break its 50 SMA on the daily chart, I can see it falling back down to its 50% Fib line.

Trade Ideas:

Buy at 9470; Stop Loss= 9450; Target= 9500

Short at 9370; Stop Loss= 9400; Target= 9340

USD/CHF

The Swissy has been taking a beating lately and all I can say is that the charts "say" that the pair is going to fall. Both stochastics on the daily and 4hr chart are reading overbought which technically means the pair should fall. If retail sales are good tomorrow, then these indicators will be irrelevant.

USD/JPY

Like the Swissy, the Yen has also been taking a butt-kicking from the dollar. Stochastics on both the daily and 4hr chart are reading overbought and indicates that the pair will fall. But we all know that indicators mean nothing if the fundamentals say otherwise!

Conclusion:

Retail sales is the story to watch tomorrow. The consensus numbers say that we are going to see a decrease in retail sales so if there is an increase, especially if it’s higher than the last numbers, then expect the dollar to hand out more butt-kickings against the majors!