Euro is looking for the line of least resistance

by Angelo Airaghi [Guest Analyst]

5/14/2007

After last week decision on interest rates, Euro remains well support over the long run against the U.S dollar. However, the short term scenario is not so decisive, as key technical levels must be overcome.

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No rate cuts in the near future in the U.S.
As expected, the Federal Reserve kept interest rates unchanged at 5.25% during last Wednesday¡¦s Federal Open Market Committee (FOCM) meeting. The closing statement was in line with previous declarations and suggests no rate cuts in the near future. In summary, the Fed acknowledges a decline in the U.S. first quarter economic growth and remains concern about inflation risks. The Fed¡¦s decision to put inflation above growth might be inspired by the conviction that, albeit the slow down is becoming evident, the overall economic picture is not has bad as it has been sometimes painted. Manufacturing and non-manufacturing new orders both showed solid gains two weeks ago. Job creation numbers, on the other hand, were below expectations, but the average hourly earnings are still near 4% year-over-year pace of growth.

In effect, latest data might anticipate some moderation of consumer demand in the second quarter of the year. However, with inflation still strong and increasing, the Federal Reserve should react to negative numbers with prudence. Considering that labor market remains active and wages are climbing steadily. In April, the advanced report on retail sales printed a decline of 0.2%, while expectations were for a 0.5% increase. March sales were changed upward to show a 1% rise from the previously reported 0.7% move. Sales increased at a 3.2% rate in April compared to the month of April of 2006, less than the 4.4% gain registered in March and only a few ticks below the 3.4% move averaged in the first three months of the 2007. Gains were seen mainly in home furnishing stores, mail orders and internet retailers. Losses were registered in garden equipment stores, building materials, clothing and motor vehicle/parts dealers.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.