By Russell Glaser
Rising expectations for an interest rate hike by the ECB have bolstered the euro in today’s trading. Crude oil was also a benefactor after rising off of its daily lows following an increase in Chinese interest rates.
Traders originally sold the euro following disappointing German industrial sales which contracted by 1.5%. Economists had forecasted an increase of 0.2%. However, market participants have since been encouraged by comments from ECB President Trichet that interest rates can be increased prior to the normalization of ECB monetary policy.
The EUR/CHF traded as high as 1.3100 and looks to close above the 100-day moving average at 1.3075.
The headline event of the day was an increase in Chinese interest rates as the PBOC hiked interest rates by 25 bps. The rise in the 1-year interest rate now takes the base lending measure in China to 6.0%. This move did not come as a surprise to the market which has predominantly priced in future tightening measures.
While one might be hesitant to put an exact level for future Chinese interest rate increases, most market participants are expecting further interest rate moves as well as other tightening measures to slow the rate of inflation in China.
Spot crude oil traded stronger after an initial knee-jerk reaction following the Chinese interest rate announcement when the commodity fell as low as $88.87, a price that coincides with the rising trend line from the August lows. The price then recovered and traded as high as 88.10.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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