ECB Stark Supports Euro to Keep Inflation Tame

ECB Stark is on the newswires saying that the ECB has to withdraw monetary stimulation to control inflation.

He also says inflation to average above 2.5% in 2011 and that the ECB sets monetary policy  for EURO as a whole.

He thinks that the markets did not fully understand the ECB last week (i.e., when Trichet was perceived to be more dovish).  He referred to the code words and commented on how they have served the ECB well but warned that the market should not put too much emphais on a single word (i.e. “vigilence”).  He further warns that the use of code words does not mean ECB is committed.  The EURO strength has kept inflation down as it lessens import inflation. 

His comments suggest the ECB is not all that excited about the sharp fall in the EURO. Their mandate is to keep inflation low - below 2% and it is above that level now. A lower EURO does increase the price of imports and in the absense of the strength, the ECB likely feels that inflation would be higher and borrowing costs would likewise be higher in the weak and strong economies of the EU.

 

The EURUSD has moved a bit higher on his comments. Greece remains a concern today. Nevertheless the EURUSD is in a very narrow range today (70 pips), suggesting a non trending market. The range is likely to be extended.  Will it be higher or lower.  Look for a break. 

If the EURUSD is to recover today a move above the 1.4378 level will be eyed for clues by the market. This level was a ceiling for an extended period yesterday (see chart above).  The price move briefly above the level on the last move higher but has moved back lower (see chart below).  ON the downside, the 1.4351 level is trendline support on the 5 minute chart. A move below this level should solicit stop selling.  Until then it may be a dip buying opportunity.  That is what Stark seems to want at least.