Archived IMT (2011.02.02)

USDs stabilizes from Asia/EU losses after S&P downgraded Irelands credit rating to A-/A-2 from A/A-1 and decision to maintain it its negative credit watch until at least April. Euro watchers await THURSDAY's ECB PRESS CONFERENCE and whether JC Trichet will step up his inflation concerns after the latest CPI estimates hit 2.4% y/y highest since Oct 2008. If Trichet reiterates his preoccupation without reservations or qualifiers, then markets will interpret it as support for at least 1 rate hike this year. We find these arguments misplaced due to the potential upward impact yield impact on struggling peripheral bonds. The short-term reaction would likely boost EURUSD towards $1.40 handle, but a 9% currency strengthening in 4 weeks should provoke verbal reverberations from EU politicians (not bankers). GBPUSD PUSHES UP 3% over the past 3 days after Jan construction PMI regained +50 level. Breaking through the $1.6150 resistance, the path remains open to the next barrier at the $1.63 barrier (Nov 2010 high). Subsequent resistance stands at $1.6420the trendline extending from the Nov 2007 high. US TV AUDIENCES CAN WATCH ASHRAF today on CNBC-US Wednesday at 11:20 Eastern (16:20 GMT) discussing the euro's turnaround, the USD's outlook and the MidEast factor.