EUR

BACK TO BASICS

In the midst of all the historic events of last week (+14% selloff in Nikkei, first coordinated FX intervention since 2000, Arab State-approved resolution on Libya) some things MUST NOT BE LOST in the noise. Fridays conference by ECBs JC Trichet stating there was "no new message" from the central bank was a reference to the all-important massage he announced on March 4th when he said "an increase in interest rates in the next meeting is possible".

I stated in last week's article (see here)http://bit.ly/ hzMCKX that "as long as major equity indices do not lose more than 6-7% from their year highs and the ECB doesn't depart from its recent hawkish turn, the EURUSD is unlikely to close below $1.36". I take this further and add that any periodic improvement in risk appetite will reward EURUSD back towards 1.4200 onto the major trendline resistance of 1.4250s. Please read the rest of the article for the subtleties surrounding the ECB tightening and whether it would entail the beginning of a hike cycle. Any pullback is seen stabilzing at 1.3930-40s before fresh bids into the April ECB decision.

As for the Japan factor, Trichet did say on Friday Japan will cause him to "think deeply" ahead of the Apri meeting. A rate hike would be IN LINE w rising EURJPY.

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