The EUR and ECB speak

Yesterday, the EUR plummeted again. The single currency fell 1.21% or 159 pips to 1.3026 to the dollar.

I covered my half short position for a 323 pips profit. (The other half profit was taken at 1.3174 as written in a previous post).

I will explain in another post why I took my proft earlier than initially planned (though I had expected EURUSD to drop to below 1.30 before the end of next week).

Last Sunday, I judged that EURUSD might take a hit, and it did, but not without the help of ECB speak.

ECB PresTrichet spoke yesterday in Tokyo saying that the ECB will do everything it can to stop the rot in the EZ (read: cut interest rates again), albeit inflation expectations having been already anchored.

The recent inflation reading was 1.9%, under the 2% standard the ECB set. So the need for keeping higher interest rates is less now.

Recent statements by members like Provopoulos, Orphanides, Nowotny and Vice Pres Papademous also spoke out in support of purchasing debt assets to ease credit conditions. Of course, this would tantamount to a move in the direction of QE and will be devaluating to the currency.

Those statements took confidence out of the EUR, thus, throughout the week, the EUR was consistently sold against the USD, JPY and the GBP.

It is also funny how when stocks are rising, the EURJPY, often a barometer of risk taking, declined. It lost 2.16% or 289 pips to close at 129.34.

Two things, either investors have lost confidence in the recent stock rally in the view that it does not have legs to go much further and are unwinding their long EURJPY positions, or that the market is pricing in a rate cut by the ECB AND some QE measures in the May ECB meeting.