Will the ECB make like Buba?

Back in days of old when the Bundesbank ruled the European monetary roost, they used to like to surprise the market ever once in a while. The ECB never surprises the market, clearly telegraphing their intentions at least a full month before they change rates. Given the financial chaos which is quickly enveloping the European banking system, tomorrow would be the perfect time for Trichet et Cie to throw the banks a lifeline and at a minimum take back the July hike and perhaps even cut 50 bp. Most expect him to signal a move tomorrow for a cut in November once inflation has been shown to be rapidly receding, but not giving what the market badly needs: an immediate cut.

EUR/USD could see a modest rally tomorrow morning if Trichet hold steady and signals only a 25 bp cut later this year. A more open-ended rate cut commitment will keep EUR/USD under pressure.