By David Song, Currency Analyst

Talking Points
  • Euro: Outlook For Greece Deteriorates Further, ESFS Clash Continues
  • British Pound: BoE Maintains Dovish Outlook, Range-Bound Price Action Ahead
  • U.S. Dollar: Rally On Tap, U.S. Existing Home Sales To Weaken

Euro: Outlook For Greece Deteriorates Further, ESFS Clash Continues

The Euro pared the overnight advance to 1.3842 as European policy makers continued to clash over broaden the powers of the European Financial Stability Facility, and the single-currency may trade heavy over the remainder of the week as fears surrounding the sovereign debt crisis bears down on investor confidence. German Finance Minister Wolfgang Schaeuble shot down talks of leveraging the EFSF through the European Central Bank, and went onto say that and went onto say that Chancellor Angela Merkel’s government will not increase its EUR 211B contribution as the EU makes a greater push to expand the bailout fund.

At the same time, a paper release by the Troika – the European Commission, European Central Bank, and the International Monetary Fund – warned that ‘ debt sustainability has effectively deteriorated ’ in Greece as the region struggles to get its house in order, and recommended that the sixth installment of the bailout be paid ‘as soon as possible’ as the region prepares to take additional steps in balancing the budget deficit. Nevertheless, hopes of finding a quick fix may deteriorate further given the rift within the EU, and the Euro may face a sharp selloff over the coming days should the meeting fail to produce a credible solution in addressing the sovereign debt crisis. As the EUR/USD remains capped by the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3880-1.3900, we should see the pair consolidate ahead of the EU Summit, but the exchange rate may threaten the rebound from 1.3145 as it appears to have carved out a near-term top.

British Pound: BoE Maintains Dovish Outlook, Range-Bound Price Action Ahead

The British Pound pared the overnight decline to 1.5691 as the economic docket encouraged an improved outlook for the U.K., but the sterling may face additional headwinds over the near-term as the Bank of England talks up speculation for additional monetary support. BoE board member Adam Posen said the MPC will need to act should growth and inflation deteriorate further, while voting member Ben Broadbent held a dovish outlook for monetary policy as he expects price growth to drop ‘pretty sharply’ in the following year. As the GBP/USD finds resistance around 1.5850, the recent rally in the sterling appears to be tapering off, and the pound-dollar may trend sideways over the near-term as market participants weigh the outlook for monetary policy. In turn, we may see the exchange rate drift lower in the days ahead, and the pair may work its way back towards the 50.0% Fib from the 2009 low to high around 1.5250 to test for support.

U.S. Dollar: Rally On Tap, U.S. Existing Home Sales To Weaken

U.S. dollar price action was largely mixed during the overnight trade, but we may see the reserve currency gain ground throughout the North American session as market confidence falters. Although equity futures foreshadow a higher open for the U.S. market, risk appetite appears to be tapering off as the benchmark indices come off of their highs, and there could be a larger shift in trader sentiment as the fundamental outlook for the world economy deteriorates. A drop in U.S. Existing Home sales may dampen the prospects for future growth, and we may see Fed officials hold a dovish outlook for monetary policy as the slowing recovery raises the risk of a double-dip recession.

--- Written by David Song, Currency Analyst

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

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Related Articles: Weekly Currency Trading Forecast

F X Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Philadelphia Fed. (OCT)

-9.0

-17.5

USD

14:00

10:00

Existing Home Sales (MoM) (SEP)

-2.6%

7.7%

USD

14:00

10:00

Existing Home Sales (SEP)

4.90M

5.03M

USD

14:00

10:00

Leading Indicators (SEP)

0.2%

0.3%

EUR

14:00

10:00

Euro-Zone Consumer Confidence (OCT A)

-20.1

-19.1

Currency

GMT

Release

Expected

Actual

Comments

AUD

0:30

NAB Business Confidence (3Q)

--

-4

Lowest since 1Q 2009.

AUD

0:30

RBA Foreign Exchange Transaction (Australian dollar) (SEP)

--

641M

Highest since June.

JPY

5:00

Leading Index (AUG F)

--

104.3

Falls back from a record-high.

JPY

5:00

Coincident Index (AUG F)

--

107.6

EUR

6:00

German Producer Prices (MoM) (SEP)

0.2%

0.3%

Increases for the seventh time this year.

EUR

6:00

German Producer Prices (YoY) (SEP)

5.5%

5.5%

CHF

6:00

Trade Balance (Swiss franc) (SEP)

--

1.85B

Exports increased for the first time since April.

CHF

6:00

Exports (MoM) (SEP)

--

3.4%

CHF

6:00

Imports (MoM) (SEP)

--

1.3%

JPY

7:00

Convenience Store Sales (YoY) (SEP)

--

-4.0%

First decline since October 2010.

GBP

8:30

Retail Sales ex Auto Fuel (MoM) (SEP)

0.2%

0.7%

Biggest advance since June, increases for the fifth time this year.

GBP

8:30

Retail Sales ex Auto Fuel (YoY) (SEP)

0.6%

0.4%

GBP

8:30

Retail Sales inc Auto Fuel (MoM) (SEP)

0.0%

0.6%

GBP

8:30

Retail Sales inc Auto Fuel (YoY) (SEP)

0.6%

0.6%

CHF

9:00

ZEW Survey (Expectations) (OCT)

--

-54.4

Highest since June.

CAD

12:30

Wholesale Sales (MoM) (AUG)

0.5%

0.2%

Rises for the fourth month.

USD

12:30

Initial Jobless Claims (OCT 15)

400K

403K

Holds above 400K for the third week.

USD

12:30

Continuing Claims (OCT 8)

3690K

3719K

Highest since the week ending September 23.
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/2011/10/20/Forex_Euro_Set_To_Weaken_Ahead_Of_EU_Summit_Sterling_To_Test_Range.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.