Market Rumours

ECB President Jean-Claude Trichet expressed his support for strong USD in response to a question about the value of EUR. "We have a very important stake" in USD being strong, Trichet said in ECB press conference. EUR/USD was at 1.5093 from 1.5045 late Wed, according to EBS via CQG.ECB's Jean-Claude Trichet's comments during the press conference following the rate decision are "positive for risk environment," said Brian Dolan, chief currency strategist at Forex.com in Bedminister, N.J. "It sounds like they (the ECB) are being flexible and actually providing a bit more accomodation than what the market was expecting to be withdrawn," he said. "They are revising up their growth forecast, they will remain flexible with the cash allotments and that means no withdrawal of stimulus and further postpones any kind of reduction in the accomodations."

The markets appetite for risk continues to improve as worries over Dubai subside notes Barclays Capital. There has also been a reasonable bounce in FX liquidity after last week's poor conditions which were exacerbated by the selloff in risk as well as month end and market holidays. BarCap says improving FX liquidity should mean that the currencies that underperformed over the past week or so, namely GBP, SEK and NOK, appear to be playing catch-up

GBP/USD once again looks at the mercy of EUR/GBP. On Wednesday GBP/USD rallied sharply as the cross fell victim to a large sell order and printed a fresh one week low of 0.9028. However Thursday the cross has rebounded to 0.9086 and GBP/USD has given back almost one cent from its 1.6721 highs. The chartists seem to like the cross with Commerzbank looking for 0.9156 and 0.9240 while 0.9027 support holds. MIG Investments says while above last week's low of 0.8977, it also looks for a rebound to 0.9240.

The opposite paths followed by the BOJ and ECB calls for more upside in EUR/JPY, says Lloyds Banking Group, who has raised its target to 134.00 on a break above 132.72. The BOJ pumped more liquidity into the market this week while the ECB is widely expected to signal an exit strategy from its unconventional liquidity measures at today's press conference which kicks-off at 1330 GMT.

The divergence warnings and trendline break in EUR/GBP have been vindicated with the daily close below 0.9050 Wednesday says Barclays Capital. A return to 0.89 is likely in coming weeks, although this move will be slow and a day or two of consolidation under 0.9110 is likely before it begins in earnest. EUR/GBP now at 0.9078.

USD/JPY's daily close above 87.15 Wednesday confirms a reversal is underway and the next upside trigger is 88.20, a break of which targets the 89.16-66 area, says Commerzbank analyst Axel Rudolph. The pair is now at 87.84.

Keep the faith in EUR/USD, says UniCredit. The bank says that improved ECB growth forecasts and more detail of the bank's exit strategy later in the day shouldn't alter the ongoing rise in the pair. "Still stay long and even increase positions below 1.5050," the bank says. The pair is now at 1.5113.

The GBP's little post-Dubai bounce this week should prove to be little more than that, according to Forex Focus by Nicholas Hastings. In fact, as the political and economic problems facing the U.K. continue to multiply, GBP's decline--especially on the non-USD crosses--should now accelerate.

European stocks are expected to open higher Thursday following a mainly positive afternoon session in the U.S. and a strong performance in Asia, where the Nikkei 225 closed up 3.8% at its highest level since October 30. However, there is a chance a wait-and-see mood will set in ahead of the European Central Bank's interest rate verdict and ensuing press conference Thursday, as well as key U.S. jobs data in the form of the weekly jobless claims figures Thursday and the nonfarm payrolls Friday. Meanwhile, spot gold extended its gains, reaching a fresh all-time high, while the dollar was mixed as news Bank of America will repay $45 billion in aid to the U.S. government brightened the outlook for the U.S. financial sector, while there was speculation that the European Central Bank may signal its intention to tighten liquidity conditions. Oil prices were steady despite the latest inventory build.

EUR/JPY rises to fresh intraday high at 132.79, highest since Nov. 24; EUR/USD also marks fresh intraday high at 1.5123, highest since Nov. 26, ahead of ECB meeting outcome later, as players betting bank to signal steps to rein in liquidity buy EUR, says Yuji Saito, head of FX group at Societe Generale. Any such ECB move may be taken as signal of further tightening to come, as EUR-zone economy continues recovering from global financial crisis. ECB rate decision expected at 1245 GMT, press conference scheduled for 1330 GMT.

We Had The Calm, Is The Storm Coming? Not surprising to veteran traders, stocks did very little on Wednesday. With weekly jobless claims data set for Thursday and the government's monthly nonfarm payrolls report on Friday, no one wants to make big moves before important labor data. "Even more so lately, the market seems to hold its breadth prior to a big news day and the next two days we have big news days related to unemployment. Nothing has captured our eyes more than employment during this recession," said Howard Ward, chief investment officer for GAMCO Growth Fund. Obama plans to hold a jobs summit tomorrow at the White House to discuss ways to improve the labor situation, prompting University of Oregon economics professor Mark Thoma to propose several ideas, including tax cuts and credits. "It is not clear at this point how committed the administration is to expending the political capital it would take actually to implement such a plan," he writes at MoneyWatch, noting he's not certain whether the summit will be a PR stunt or lead to actual policy change. Nevertheless, "I don't expect any large policy initiatives, certainly nothing like what is needed to make a large dent in the employment problem," Thoma adds.