Will Central Bank Statements Help the Dollar?

It looks like the assault on the season high of 1.4843 is going to more than a casual endeavor. Despite the tailwind provided by strong equities this week, the euro could only muster a rally to 1.4761, and has since sold off to under 1.4680. At the CME, the futures open interest increased modestly Tuesday to a total of over 170,000 contracts. Granted this is small change compared to the 2,497,000 open interest in the E-Mini S & P 500 contract, but it is growing.

Recently the pronouncements of finance ministers and central bankers have been market movers, and sometimes front page stories. Today we hear from both the Bank of England and the European Central Bank. Governor King of the Bank of England has made his case clear that a weak pound is in the best interest of Britain. Exports would benefit with the competitive advantage of the cheaper currency, and would assist in the economic recover.

Jean Claude Trichet is currently head of the European Central Bank. It is expected they will keep the rate unchanged at 1% and will caution that a speedy recovery is not to be expected. At last week end's G 7 meeting, Trichet said there was no reason for the dollar to weaken against the euro. On other occasions, Trichet has cautioned that the strong euro versus the dollar and the pound also would hinder the common market's recovery. A strong dollar is in the best interest of the ECB, so it will be interesting to see if they try to coax the dollar higher.

Perhaps this is the reason the euro has sold off; if so, where does the pair find support?

It looks like there would be some support in the 1.4550/1.4600 area. With a US unemployment number coming out Thursday, a US trade balance number on Friday, and a chance for a rally in equities, after yesterday's pause we will look for a spot to try the long side.