From the Secret Files of Jean-Claude Trichet

Not really; but it makes for an enigmatic lead-in, even if you already knew I have no access to Trichet’s secret files – only know that they do exist, and that beneath Bernanke’s placid veneer lies a smoldering jealous rage because excerpts from Trichet’s secret files fetch a higher price on the black market than Bernanke’s. This is why the FOMC meeting minutes are not comprehensive. Who can say amidst discussions of how many billions to print in T-bills for the TAF what paroxysms of secret file-related acrimony burst from Bernanke’s lips?

A lot of attention has been concentrated on the ECB’s decision in the past few weeks, especially with the consecutive events of G7, the EUR/USD 1.60 breach and the dollar’s significant rally over the past three weeks. Not only that, but the concern about “turmoil in the financial markets” spilling over to the EU sufficient to merit a rate cut was and continues to be highly relevant. Nevertheless, the ECB held rates steady, as summarized:

To sum up, a cross-check of the [aforementioned] outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment that upside risks to price stability prevail over the medium term, in a context of very vigorous money and credit growth and with no significant signs of supply constraints on bank loans. The economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. However, the level of uncertainty resulting from the turmoil in financial markets remains high. Against this background, we emphasise that the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council.

Little changed then, except that the notion of an imminent shift toward shoring up economic growth is dispelled among onlookers, at least for the time being. Read further about the economic and monetary analyses in the full speech here or the Central Banks RSS feed in the sidebar.

How does this affect the EUR/USD? The post-announcement volatility bumped the pair back across the fib fan and retracement level mentioned last night, but the reaction was muted overall, indicating the dollar rally may have some staying power. In fact, price moved within 20 pips of the descending trendline on our falling wedge but has since backed off, though the move has stabilized the pair around 1.54. But, a break of the 1.53 region will be necessary to regain the downside momentum.

I pulled these charts from Oanda (writing from the MT4-less Mac side of my laptop) to give a general idea of what I’m talking about here:

Daily:

Hourly: