FX Traders Get 'Tricheted' Again

Big swing in the Euro today after Jean-Claude Trichet, as Bloomberg put it, "dashed investors expectations for an increase in interest rates next month." Here is where I outlined the basic tension between the desires of the political class and the folks in charge of monetary policy. And then this is what I said on Jan. 24:

"Today, the currency market bought the European line of rising rates hook line and sinker. Color me skeptical. The currency yahoos trade on the day's news b/c they need to have cash in pocket for the weekend and if the Italian Finance Beaurocrat says that the ECB will raise rates, well, they'll go along. I find it hard to believe that the ful ECB will continue raising rates when the most excited that the likes of Germany can get is projections of GDP growth moving from 0.7% to 1.0%."

All the analysts are pointing to fundamentals and predicting a few more rate increases. Maybe I'm nuts, but with nary a sign of inflation and only a glimmer of economic optimism, it is really hard to see this, but in truth currencies are above my pay grade. Still, I see the European economy only revving up ever so slightly and there is no way that J-CT is gonna be the guy to strangle the infant in the crib. Thus he whacked the market's expectations of aggressive tightening today. If they had only read Dony Baseball, as I outlined how how J-CT is "hemmed in" to a more accomodative stance than the fundamentals warrant. If the ECB doesn't raise next month and the Fed does raise in May, then we could see the Euro back down in the $1.17-$1.19 range.