• Last night US markets rallied strongly into the close. The S&P 500 and Dow Jones (Wall Street) closed up 2.16% and 2.27% respectively. For both markets this represents the biggest gain since September 1st.
• This morning things are a lot quieter as traders hold their fire ahead of some important economic news.
• The one exception is the New Zealand dollar which is trading against its medium term trend, with the NZD/USD up 0.53% today.
• One of the big catalysts for yesterday's rally was speculation that the European Central Bank (ECB) would be buying up the debt of trouble European governments, easing the pressure on their funding requirements. Strong US economic data certainly helped, but it was the ECB bond purchase rumour that lit the fire.
• Today we should find out if markets get what they want or whether markets got ahead of themselves. Today the ECB set interest rates at 12.45 and follow up with a press conference at 13.30. Keep an eye on the EUR/USD during this time period.
Coming up today
• Also coming up today we have US unemployment claims at 13.30 and US and pending home sales at 15.00. Both are expected to show a slight improvement on the last data release.
• Already today, Australian retail sales slowed at -1.1% vs +0.4% expected. It appears the recent rate hikes may be having and early effect, potentially putting the chance of further rate hikes further into the future, hence the AUD/USD's sluggish behaviour today. Australian trade balance did come in better than expected however.
EUR/USD Trade idea:
• With markets rallying so strongly yesterday, today the buyers might take the opportunity to take a breather. Although Trichet is likely to announce some sort of bond purchase program, this is by no means guaranteed, neither is it guaranteed to be of the scale that markets expect/hope.
• So it could be a good opportunity to sell the facts after markets bought the rumour.
The EUR/USD could be a good candidate for this. A LOWER trade predicting that the EUR/USD will be below 1.3125 by the end of today could return 114%.
Summary:
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