EUR/USD drifted back to the 1.20 area from intraday highs at the 1.2060 zone. The only valid explanation is growing concern that Fed chairman Mr. Greenspan might prepare the market for a rate hike. Rates on the short end drifted slightly higher yesterday and this probably dragged the USD along. There is clearly some nervousness over Greenspan's speeches (today) and tomorrow. This morning, the EUR/USD pair sank below 1.20, moving to the 1.1960 zone. This probably should also be seen as pre-positioning on some potential hawkish talk today or tomorrow by Mr. Greenspan. Today he will address the Senate's Banking Committee, tomorrow the Joint Economic Committee. We do not expect Greenspan to give anything away today, so tension should remain intact until tomorrow's hearing, keeping the EUR/USD pair locked within a tight range as speculators diverge on opinions what the chairman will have to say. Only he knows. So a cautious approach at this stage seems warranted. Should the market get carried away, e.g. running away with a hawkish scenario ahead of the speech and bring EUR/USD to fresh lows, we would be inclined to counter such a movement as overly risk skewed pre-positioning.
ČSOB - Investment Research