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Forexpros.com Daily Analysis - 07/04/2011

Markets saw some action during the past session or so, despite widely expected ECB rates decision. The expectations are increase for 25basis points, from 1% up to 1.25%. And as laready mentioend few times, the rate hike is already priced in the market, so DO NOT be surprised if you see the opposite, weak Euro reaction during the press conference, which is 45minutes after the rate decision. This would then be a psychological effect; always, or we must say in many times, the absolutely opposite reaction occurs against the crowd anticipations! With this being said, what if ECB will not raise rates at all!? In this case, we believe top will be placed on Eur/usd for some time, because large investors/institutions will cover their Euro Longs, which will likely provide a larger Euro fall.

On the other hand, a rate increase should be good for the Euro (from a longer perspective), because the Fed has no plans to increase rates for the US dollar any time soon. This of course is the main reason for a strong Eur/Usd move for the past few weeks.

What about technical picture!? The pair is facing a powerful resistance around 1.4300/400 region with decreasing volume and divergence shown on a daily chart attached below. At the same time pair is testing trend line from 2008, so we believe that close price of this week will be very important; break and push below rising trend line will be a very bearish signal, while break and close above 2008 trend line will put even more gains in play for weeks ahead.

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