Archived IMT (2011.03.03)

The ECB did not disappoint euro bulls when it upgraded its 2011 and 2012 inflation forecasts to 2.2% from 1.8%, and to 1.5% from 1.7% respectively. As warned in yesterdays IMT, the ECB has tightened the policy bias by paving the road for a May rate hike (some expect it in April). Whether the Eurozone could handle 25-bps more in rates shall depend on the reaction to peripheral nations bond yields. At a time when equity indices appear increasingly vulnerable to rising oil prices and MidEastern events, a broad sell-off in risk currencies may also bring about the usual reaction of rising bond yields in Portugal, Ireland and Spain. 1.3950-55 is the 200-week MA in EURUSD as well as the trendline resistance from the $1.5160 high thru the $1.428 high. There is NO CHANGE in EURGBP rallies nearly 100 pips to 0.8570s but has yet to break (close) above the important trendline resistance of 0.8580 (see prev IMT). Falling GBPUSD following weak services PMI is part of the answer, while the technical explanation remains the all-important $1.6370-80 trendline resistance. AUDUSD weakness despite improved risk appetite reflects the difficulty of breaking above 1.02 and the ongoing success of teh shorts at the 1.0180s targetting 1.0120-1.0100s.