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Morning forex report

The USD tumbled sharply on Wed. as the ECB’s Trichet basically said ‘Non’ to the idea of rate cuts, stressing that growth was holding up in the Eurozone (German IFO ticked higher on the day, just to underscore this point…) and that inflation risk was still too high. Given that the ECB is expecting inflation to remain above their target rate all year long, it does seem that something extraordinary will be needed to turn their heads on this. The US durable goods data, by contrast, fell sharply again, not the best of backdrops for USD recovery plays. This leaves the USD looking beaten up again with the downtrend still holding a tight grip on the reins. The risk has to be on $1.59 giving way in the EUR/USD for $1.60, then $1.70 here we go as the EUR staircase is now 10 cents at a time. The best thing going for the USD is that it is already trading at bargain basement levels - and while bad news should be able to knock it through key levels, and many pundits are writing about the USD as if it is in free fall, this seems more like a USD buyers ’strike’ than a free fall. What would make the USD find friends? Thoughts of a base in rates, better than expected data on any front, and maybe some wobbles in the Eurozone data. On the charts, the EUR/USD upside risk is well known, use a push below 1.5730/1.5660 as reason to aim for 1.5450/1.5340 again. The latter is now key potential double top midpoint support, relevant only if 1.59 holds off upticks! Cable above 2.00 could see 2.04 again, chances are that 2.0160/2.0220 fends off upticks, EUR/GBP risk is for 0.79 to give way for 0.80 after all, still not favored but the risk is there once again so… In the yen, risk aversion waxes and wanes, trend wise losing 99 would be negative for the USD for 98.60/97.50, not favored but.

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