Trichet Concerned About Inflation

The Euro drifted lower today, and traded to a 3-week low against the US dollar as European finance ministers complained that the Euro is appreciating too quickly. Luxembourg Prime Minister Jean-Claude Juncker said yesterday the Euro’s 11.3% gain against the USD over the past year is more than enough to reduce global

trade imbalances.

ECB’s Ordonez said today that he is in favor of a strong US dollar and flexible exchange rates for the world’s major currencies.

ECB’s head Trichet didn’t make any new comments with regards to the Euro when he spoke to the EU Parliament ("We will continue to monitor exchange rate developments closely. Excess volatility and disorderly movements are undesirable for growth.").

He also said inflation rates will remain "significantly" above 2% in the coming months, but are likely to moderate thereafter. The medium-term economic outlook is favorable, and the Eurozone is likely to grow at around potential.

From what he’s saying, there is certainly room for higher interest rates in the Eurozone, although the timing is unclear to everyone, including the ECB.

The pressure is not just on the Euro, but also on China and Japan. Eurozone policymakers have also been trying to urge China and Japan to let their currencies appreciate and ease upward pressure on the Euro.

Watch out for the Fed minutes for the Sep 18 rate cut meeting at 1800 GMT today.

EUR/USD’s support is still around 1.4000-20, then 1.3960-80. USD/CHF’s nearest resistance is now around 1.1900-20, then 1.1950-60, and nearest support around 1.1850, 1.1800-20.

Wednesday:

Bank of Japan rate decision (rate expected to stay at 0.5%)

ECB’s Garganas presents Bank of Greece monetary policy report 0930 GMT

US MBA mortgage applications 1100 GMT

Fed’s Rosengren speaks about real estate 1200 GMT

US wholesale inventories 1400 GMT

UK leading indicator index 1430 GMT

NZD ANZ business NZ PMI 2300 GMT

UK RICS house price 2301 GMT

Japan trade balance 2350 GMT

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