The EUR / USD before the ECB meeting

Today we will follow with interest the decision of the European Central Bank is expected to raise interest rates in the Eurozone.  Jean-Claude Trichet hinted at the final meeting of the Board of Governors that the rate hike is likely in the euro area in July. The Central Bank monitors "very closely" developments "regarding the upside risks to price stability" and  has a "high vigilance" on inflation.In this macroeconomic environment the EUR / USD is expected to trade in July around 1.45 USD, but the fears of contagion in the peripheral zone slow the advance of the Euro. As long as markets are not reassured by the action on the case of Greece and Portugal (see also Irish), we will continue to see high volatility on the foreign exchange market.
The EUR / USD has been heavily impacted this week by bad news from the Eurozone. Indeed, on Tuesday Moody's downgraded by four notches  of the note of Portugal, now considered speculative. The decision of the rating agency has been highly critical of European officials who fear a destabilization in the euro area.

After the financial crisis that began in the United States in 2008, the rating agencies have been criticized for their role in the rating of various financial instruments linked to subprime mortgages. Today, agencies have learned their lessons and are pretty harsh in degrading peripheral European debt. The downgrade of Portugal by four notches is once again a proof that the rating agencies warn investors too late while the budgetary pression has been developing over several years. The direct effect is a significant market volatility and the flight to quality by investors. The ounce of gold has benefited massively to bad news this week reaching historic levels.

 

In this economic climate investors in the currency markets will enjoy a great volatility in the forex category as well as in the raw materials sector.