The shortened week in the US will not deter central bank interest rate decisions from the ECB, BOE, BOJ, RBA, and BOC. All eyes will be focused on the ECB press conference as Jean-Claude Trichet will likely be asked to clarify his comments from last Monday which he gave before the European Parliament. Additional questions remain as to the circumstances surrounding the Troika’s early departure from Athens today.
Trichet suggested inflationary pressures in the euro zone may be declining and this week’s sharp drop in the value of the EUR/CHF may be a result of market players taking a second look at the next expected ECB interest rate increase which is forecasted to come in Q4 after Mario Draghi takes over the helm of the ECB. Perhaps the ECB would do well to take a page from Brazil’s playbook by backpedaling away from the ultra-hawkish monetary policy stance the ECB has worked so diligently to frame in investors’ minds. An interest rate reduction could go a long way toward supporting the sluggish rates of growth in in Europe. Trichet will also be questioned on the scaling back of the ECB’s bond purchases to EUR 6.651 bn, its smallest amount yet since the ECB began buying Italian and Spanish debt.
Additional central bank meetings will take place throughout the week but it may be the SNB which highlights the week as investors seem intent on testing the resolve of the Swiss central bank to weaken the CHF given the 1% decline in the EUR/CHF today.
Today’s non-farm payrolls report takes extra importance to cement or dispel hopes of QE3. A release below expectations of +74K will likely fuel additional speculation in the forex trading blog community. With the winding down of the summer vacation season liquidity should return to normal levels next week as forex trading desks will begin to operate with a full staff.
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