EUR/USD strongly testing 1.4890

The euro has been persistently testing the 1.4890 level versus the dollar for most of this morning. With the major U.S. macroeconomic indicators behind us for today, we could expect the current bullish Euro trend to continue and we could easily approach an all-time high before the day is over.

The PPI data released today showed increasing inflationary pressures, which should have been bullish for the dollar but the move was limited. The currency pair was very quick to return to the 1.4890 level to test it once again.

Alert: Beware of the all-time high of 1.4967 by the end of today's session and going into tomorrow!!!!

The U.S. has already used up its main catalysts which leads us to consider that the strong two week bullish trend will continue until it approaches the all-time high.

Dollar is Staging a Recovery

The Dollar is staging a recovery in a day when the Bank of England lowers its interest rate to 5.50%. This is a surprise move by the bank as most analysts were still expecting the money price to remain unchanged. Some, however, were starting to consider a cut.

The GBP/USD has lowered to 2.02 while the EUR/USD is testing significant trendline at 1.4520.

With minutes to go for the European Central Bank to makes its interest rate decision, another surprise could provoke some greater volatility to the forex market. It is expected to remain unchanged.

U.S. CPI: Meets Consensus Estimate But Inflation Is Getting High

Inflationary pressures are finally being felt by consumers. Investors have been wondering how long it would take for the high energy and food prices to filter through to other sectors.

High inflation is a bullish indicator for a currency. As such, we saw a correction on the EUR/SD to 1.4620 after the release of this data.

Possible entry point for EUR/USD

The EUR/USD is reaching its 200 hour moving average after a significant recovery in the dollar. These short-term corrections could prove to be good entry points if today's dollar rally does not continue. The currency pair has already bounced off its support once in the last hour.

Possible trade setup:

Long at 1.4550 – 1.4570 with stop order 5-10 pips below today's low of 1.4547. Good reward to risk ratio.

ECB keeps interest rates steady at 4.00%

As was widely expected the ECB kept interest rates at 4.00%.

Muted reaction on the EUR/USD, currently steady at 1.4655.

Close attention will be paid to Trichet's statement! A hawkish statement could drive the euro higher, investors will be looking out for this.

The webcast could be watched from the ECB website at 8:30am EST, here

Followup: Trichet cites sustained economic growth... strong increase in inflation indicator... expects inflation to be above 2% in following months before moderating in late 2008... positive sign from labor markets... upwards risk to price stability... [crisis led to] large monetary shift to safe, liquid monetary assets ... ready to counter upside risks to price stability

EUR/USD at 8:47pm EST: 1.4660. Market is not surprised

EUR/USD, Back above 1.45

The Eur/Usd is back above 1.45. The job creation data was positive, however, the worries about the financial sector dominate the market.

The SEC investigation into Merrill Lynch possibly delaying write-downs just shows us that there could be lots of losses waiting to be seen in future quarters.

UBS also downgraded Fortis for lack of transparency about their exposure to the U.S. mortgage markets.

The focus is squarely on the financial sector and the problems they could be facing.