Forex: Euro Relief Rally Threatens 61.8% Fib, Sterling To Consolidate

By David Song, Currency Analyst

Talking Points
  • Euro: Struggles To Hold 50.0% Fib, EU To Draw Up Recapitalization Plan
  • British Pound: To Face Range-Bound Price Action Ahead Of BoE Minutes
  • U.S. Dollar: Weighed By Risk Appetite, All Eyes On FOMC Minutes

Euro: Merkel, Sarkozy Pledge Lifts Market Sentiment, 61.8% Fib in Sight

The Euro rallied to an overnight high of 1.3637 as German Chancellor Angela Merkel and French President Nicolas Sarkozy responded to the credit rating downgrade by Fitch and pledged to address the sovereign debt crisis by the Group of 20 Summit on November 3. At the same time, the two leaders announced that they will nail out a commercial bank recapitalization plan in the next three weeks, and the renewed effort to restore investor confidence may lead to a larger correction in the EUR/USD as price action trades above the 20-Day SMA (1.3547) for the first time since August.

As the rebound from 1.3145 gathers pace, we may see the EUR/USD make a run at the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3890-1.3900, but the relief rally may be short-lived as the fundamental outlook for Europe deteriorates. European Central Bank board member Erkki Liikanen held a cautious outlook for the region, stating that the ‘lack of long-term funding is crimping investment,’ and we may see the Governing Council continue to expand monetary policy further as the region faces a growing risk of a double-dip recession. In turn, we may see the bearish sentiment underlying the Euro resurface in the coming days, and the pair may threaten the rebound from earlier this year (1.2873) as market participants see the ECB scaling back the benchmark interest rate from 1.50%.

British Pound: ToFace Range-Bound Price Action Ahead Of BoE Minutes

The British Poundcontinued to recoup the losses from earlier this month, with theGBP/USD advancing to a high of 1.5663, but the sterling may facerange-bound price action ahead of the Bank of England meetingminutes due out on the 19 th should the exchangerate carve out another top around 1.5700. As the central bank takesadditional steps to stimulate the ailing economy, there’sspeculation that the MPC will carry its easing cycle into thefollowing year, and the committee may show an increased willingnessto expand the asset purchase program beyond the GBP 275B target aspolicy makers see a greater risk of undershooting the 2% target forinflation. As market participants weigh the outlook for futurepolicy, it seems as though the GBP/USD may consolidate within anarrow range over the coming days, and the exchange rate may giveback the rebound from 1.5273 as the rise in risk appetite appearsto be easing off.

U.S.Dollar: Weighed By Risk Appetite,All Eyes On FOMC Minutes

The greenback sold offagainst its major counterparts, with the Dow Jones-FXCM U.S. Dollarindex (Ticker: USDOLLAR ) falling to a low of9,853, and the gauge may continue to retrace the rebound from 9,396as it breaks out of the upward trend carried over from the previousmonth. As the economic docket remains fairly light for theremainder of the day, we should see risk sentiment dictate priceaction over the next 24-hours of trading, and the greenback maycontinue to trade heavy throughout the North American session asequity futures foreshadow a higher open for the U.S. market. Withthe FOMC Minutes on tap for later this week, dovish comments fromthe committee may fuel a larger correction in the USD, and marketparticipants may continue to diversify away from the reservecurrency as global policy makers step up their efforts to addressthe risks for the world economy.

--- Written by David Song, CurrencyAnalyst

To contact David , e-mail dsong @dailyfx.com. Follow meon Twitter at @ DavidJSong

To be added to David 's e-mail distributionlist, send an e-mail with subject line "Distribution List"to dsong @dailyfx.com.

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F X Upcoming

Currency

GMT

EDT

Release

Expected

Prior

No Scheduled Releases

Currency

GMT

Release

Expected

Actual

Comments

AUD

0:30

ANZ Job Advertisements (MoM) (SEP)

--

-2.1%

Falls for the third straight month.

AUD

5:30

Foreign Reserves (Australian dollar) (SEP)

--

A$44.9B

Highest since July 2010.

EUR

6:00

German Trade Balance (euros) (AUG)

9.0B

11.8B

Largest surplus since June, exports rise for the fourth time this year.

EUR

6:00

German Current Account (euros) (AUG)

5.0B

7.0B

EUR

6:00

German Exports s.a. (MoM) (AUG)

1.1%

3.5%

EUR

6:00

German Imports s.a. (MoM) (AUG)

0.6%

0.0%

EUR

6:30

Bank of France Business Sentiment (SEP)

--

97

Hold steady for second month.

EUR

6:45

French Industrial Production (MoM) (AUG)

-0.7%

0.5%

Increases for the second consecutive month.

EUR

6:45

French Industrial Production (YoY) (AUG)

2.3%

4.4%

EUR

6:45

French Manufacturing Production (MoM) (AUG)

0.2%

0.7%

EUR

6:45

French Manufacturing Production (YoY) (AUG)

3.7%

5.1%

EUR

8:00

Italian Industrial Production s.a. (MoM) (AUG)

0.2%

4.3%

Biggest advance since the series began in 1990.

EUR

8:00

Italian Industrial Production w.d.a. (YoY) (AUG)

-2.7%

4.7%

EUR

8:00

Italian Industrial Production n.s.a. (YoY) (AUG)

--

4.6%

EUR

8:30

Euro-Zone Sentix Investor Confidence (OCT)

-18.0

-18.5

Lowest since July 2009.
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2011/10/10/Forex_Euro_Relief_Rally_Threatens_61.8_Fib_Sterling_To_Consolidate.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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