*Last Updated February 21, 2006, 12:26 am

Daily report by CMC Markets

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FOREX ANALYSIS

Trichet’s comments fail to support Euro; US inflation data in focus

February 21st - Despite yesterday’s words by Trichet adding weight to the fact Eurozone interest rates are going to be rising in the near term, this has done little to support the common currency in overnight trade, shedding close to 0.75 cents against the greenback and it’s today’s US inflation data along with the release of FOMC meeting minutes that seems to be dominating traders thoughts just now. Overall the dollar may have retreated from last week’s highs, but short term direction is now for further appreciation and arguably once there’s more evidence as to just how long the hawkish stance over interest rates may continue for at the Fed, another extended rally may emerge. However, in the meantime – and perhaps unless there’s a surprise in the Eurozone trade balance figure for December – the current run of churning may be set to continue at least through the European morning session. German business confidence will doubtless be under scrutiny when the IFO surveys are released on Thursday and it seems likely that by the end of the week that some consensus may have been formed as to whether we’re going to see further divergence of interest rates between the ECB and the Fed by the middle of next month.

Paul Jackson and Enis Mehmet



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