You have to realize that this is a game of chicken. Its been started by the Fed, mind you. And there is no underlying fundamental reason why Trichet should submit to all those inflationary pressures that are generated by dollar printing. Its just something that our American friends have to eat themselves, and even though they invited the Europeans and the Japanese, its a dinner invitation that will be passed. Especially because the food served there just stinks from a mile. I think Trichet does the right thing here. You are making the mistake of only seeing oil and commodity prices in dollar terms. If you look at the prices in euro terms, you'll find that even though there has been significant appreciation, its far from a cause to alarm. Plus, its a very journalistic-populistic thing to say that Trichet is driving the euro up. His not driving anything up, Bernanke is driving down the dollar. That means that the euro appreciates compared to the dollar. Trichet has nothing to do with this, especially because its quite apparent that he is not playing along Benny's puppeteers' will.
You could have made 100 pips since your post (12 hours ago)doing what I predicted. Read my thread here. http://www.elitetrader.com/vb/showthread.php?s=&threadid=122833
You're calling a reversal of a 6 year trend and when there's a 100 pip retrace you claim victory? This kind of confidence can kill your account.
I don't think Ben cares whether the ECB cuts or not. I fully believe Ben is fine with the devaluation of the dollar. It's a "our currency, your problem" kinda thing. I do, however, believe there are many in the EZ who are crying "uncle" right now on the pain threshold the Euro is causing. Some of those are even in Germany, though most are elsewhere. They, and many others, lay that at the feet of Trichet. Right or wrong, whenever Trichet shows up with another "We must fight inflation" speech, the Euro goes through the roof. This is a good blog I follow that has lots more on the subject: http://www.euro-area.org/blog/?p=132
They've been working on this Strong Dollar policy for a while now. Its really strong economy thru a weaker dollar. People forget that we as a country have to get our exports up. Can't rely on service driven GDP. I mean if you take every single person on this forum, does a single person sell something abroad... Eur to 1.60+ without a doubt.
Of course the strong euro causes pain for some Europeans; transatlantic trade is the biggest in the world. But most of the EU is fine. In general the weak dollar causes more problems in the US than in the EU. Compare charts of equities (in same currencies). EZ is fine, US is not. When Trichet rhetorically fights inflation the euro goes up because now all of those (typically American IBs) that started to position for an ECB rate cut have to cover. Its also interesting that 'coordinated CB intervention' is only a daily topic in American media. Here in Europe its not even a thought to ponder. And again: the euro does not go up because of Trichet. (Look at a monthly chart of EUR/USD: a 6 year trend up from 0.83 to 1.59 is not because of any single person is blabbing anything.) The dollar goes down because of Bernanke: and whenever that monkey is cutting rates to prop Wall Street/Goldman Sachs, the dollar takes a dive. And after each Fed rate cut some participants start to speculate about an ECB rate cut. When Trichet says no, he is not doing anything to the euro: short interest must be covered, so unwise traders that bet on a reversal push the price back up.
So you don't think anyone (funds, etc) buy the Euro when Trichet or Weber are on the lines talking about how prices are rising and rates have not peaked? From a long term perspective, monetary policy dictates the moves - no doubt. Hence, it falls on the Fed for the weak dollar. But in the short term, these price moves are exaggerated by sabre rattling.