Euro Optimism Fizzles Amid Greek Impasse, Short-Term Reversal Ahead

By David Song, Currency Analyst

Talking Points
  • Euro: All Eyes On Greek PSI Talks, ECB To Not Participate In Haircut
  • British Pound: Maintains Upward Trending Channel, Eyes 23.6% Fib
  • U.S. Dollar: Index Finds Support, Reversal On Tap

Euro: All Eyes On Greek PSI Talks, ECB To Not Participate In Haircut

The Euro pared the decline from the previous day as the EU announced plans to sign the new fiscal pact in March, but the single currency may trade heavy over the remainder of the week as Greece struggles to strike a deal with private investors. In response, European Central Bank board member Ewald Nowotny argued that he cannot be sure whether Greece will be able to fulfill its obligations to stay within the monetary union, and went onto say that the ECB will not participate in a Greek haircut as ‘the current discussion is about a participation of the private sector.’

As the Greek debt talks take center stage, developments regarding private sector involvement will certainly influence the single currency over the coming days, but the results could set precedence for Portugal as the region faces record-high financing costs. As the heightening risk for contagion continues to cast a dour outlook for the region, we are likely to see ECB President Mario Draghi encourage commercial banks to take advantage of the second three-year loan facility due out in February, but the Governing Council may have little choice but to lower the benchmark interest rate further as the region slips back into recession. As the Greek impasse dampens the outlook for the euro-area, the EUR/USD appears to be carving out a lower top just ahead of 1.3250, and the exchange rate may give back the rebound from earlier this month should the pair struggle to hold above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100.

British Pound: Maintains Upward Trending Channel, Eyes 23.6% Fib

The British Pound surged to a fresh monthly high of 1.5795 as consumer confidence in the U.K. advanced to a seven-month high in January, and the GBP/USD may continue to push high over the remainder of the week as it maintains the upward trending channel from earlier this year. As investors increase their appetite for risk, the rise in market sentiment should prop up the sterling over the coming days, but it seems as though retail traders are trying to go against the bullish momentum as the DailyFX Speculative Sentiment Index widens to -4.02. As retail crowd remains heavily net short against the GBP/USD, the SSI suggests we will see higher prices over the near-term, and the exchange rate may work its way back towards the 23.6% Fib retracement from the 2009 low to high around 1.6200 should former resistance around the 38.2% Fib (1.5680-1.5700) act as new support.

U.S. Dollar: Index Finds Support, Reversal On Tap

The greenback struggle on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR ) slipping to a fresh monthly low of 9,723, and the reserve currency may weaken further during the North American trade as the rise in risk appetite gathers pace. As the U.S. equity market opens higher, it seems as though market sentiment will continue to pick up over the next 24-hours of trading, but the USD may regain its footing later today as hopes of a Greek PSI deal falter. Indeed, European policy makers have floated the idea some sort of resolution will be reached in the coming days, but the stalemate could drag on risk-taking behavior as the risk for a Greek default intensifies. Nevertheless, as the USDOLLAR manages to hold above the 38.2% Fib around 9,710, the greenback looks poised for a correction, and the index should push higher over the remainder of the week as long as the relative strength index continues to hold above oversold territory.

--- Written by David Song, Currency Analyst

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

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

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Related Articles: Weekly Currency Trading Forecast

F X Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:45

9:45

Chicago Purchasing Manager (JAN)

63.0

62.2

USD

15:00

10:00

Consumer Confidence (JAN)

68.0

64.5

USD

15:00

10:00

NAPM-Milwaukee (JAN)

57.3

57.8

Currency

GMT

Release

Expected

Actual

Comments

JPY

23:15

Nomura/JMMA Manufacturing Purchasing Manager Index (JAN)

--

50.7

Expands for second month.

JPY

23:30

Jobless Rate (DEC)

4.5%

4.6%

Highest jobless rate since July.

JPY

23:30

Job-To-Applicant Ratio (DEC)

0.70

0.71

JPY

23:30

Household Spending (YoY) (DEC)

-0.1%

0.5%

Rises for the first time since February.

JPY

23:50

Loans & Discounts Corp (YoY) (DEC)

--

0.0%

Fails to grow for 26 straight months.

JPY

23:50

Industrial Production (MoM) (DEC P)

3.0%

4.0%

Biggest rise since May.

JPY

23:50

Industrial Production (YoY) (DEC P)

-5.0%

-4.1%

GBP

0:01

GfK Consumer Confidence Survey (JAN)

-32

-29

Highest since June.

AUD

0:30

NAB Business Confidence (DEC)

--

3

Best reading since May.

AUD

0:30

NAB Business Conditions (DEC)

--

1

AUD

0:30

Private Sector Credit (MoM) (DEC)

0.3%

0.3%

Rises for the sixth straight month.

AUD

0:30

Private Sector Credit (YoY) (DEC)

3.6%

3.5%

NZD

2:00

Money Supply M3 (YoY) (DEC)

--

6.0%

Holds above 6% for second month.

JPY

4:00

Vehicle Production (YoY) (DEC)

--

13.4%

Expands for the third consecutive month.

JPY

5:00

Annualized Housing Starts (DEC)

0.848M

0.783M

Declines for the fourth straight month.

JPY

5:00

Housing Starts (YoY) (DEC)

-1.5%

-7.3%

JPY

5:00

Construction Orders (YoY) (DEC)

--

1.5%

Rises for the ninth time in 2011.

JPY

5:00

Small Business Confidence (JAN)

--

45.7

Hits a two-month high.

EUR

7:00

German Retail Sales (MoM) (DEC)

0.8%

-1.4%

Biggest decline since May 2009.

EUR

7:00

German Retail Sales (YoY) (DEC)

0.9%

-0.9%

CHF

7:00

UBS Consumption Indicator (DEC)

--

0.92

Highest since July.

EUR

7:45

French Producer Prices (MoM) (DEC)

-0.1%

-0.1%

Slowest pace of growth since November 2010.

EUR

7:45

French Producer Prices (YoY) (DEC)

4.7%

4.7%

EUR

7:45

French Consumer Spending (MoM) (DEC)

0.2%

-0.7%

Falls for the first time since July.

EUR

7:45

French Consumer Spending (YoY) (DEC)

-2.1%

-3.1%

EUR

8:55

German Unemployment Change (JAN)

-10K

-34K

Largest decline since March.

EUR

8:55

German Unemployment Rate s.a. (JAN)

6.8%

6.7%

EUR

9:00

Italian Unemployment Rate s.a. (DEC P)

8.7%

8.9%

Highest since the series began in 2004.

GBP

9:30

Mortgage Approvals (DEC)

54.0K

52.9K

Highest reading since December 2009.

GBP

9:30

Net Consumer Credit (DEC)

0.4B

-0.4B

GBP

9:30

Net Lending Sec. on Dwellings (DEC)

0.8B

0.7%

GBP

9:30

M4 Money Supply (MoM) (DEC)

--

-1.4%

Declines for the fifth consecutive month.

GBP

9:30

M4 Money Supply (YoY) (DEC)

--

-2.5%

GBP

9:30

M4 Money Supply ex OFCs (Annualised) (3M) (DEC)

--

-0.8%

EUR

10:00

Italian Producer Price Index (MoM) (DEC)

-0.1%

0.1%

Slowest pace of growth since November 2010.

EUR

10:00

Italian Producer Price Index (YoY) (DEC)

3.7%

4.0%

EUR

10:00

Euro-Zone Unemployment Rate (DEC)

10.4%

10.4%

Highest since April 1998.

CAD

13:30

Industrial Product Price (MoM) (DEC)

-0.1%

-0.7%

Weakens for the fifth time in 2011.

CAD

13:30

Raw Materials Price Index (MoM) (DEC)

0.0%

-2.4%

USD

13:30

Employment Cost Index (4Q)

0.4%

0.4%

Bounces back from the slowest pace of growth since 1996.

CAD

13:30

Gross Domestic Product (MoM) (NOV)

0.2%

-0.1%

Fails to grow for the second straight month.

CAD

13:30

Gross Domestic Product (YoY) (NOV)

2.3%

2.0%

USD

14:00

S&P/Case-Shiller Composite-20 s.a. (MoM) (NOV)

-0.50%

-0.70%

Weakens for the seventh consecutive month.

USD

14:00

S&P/Case-Shiller Composite-20 (YoY) (NOV)

-3.30%

-3.67%

USD

14:00

S&P/Case-Shiller Home Price Index (NOV)

--

138.49
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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/01/31/Euro_Optimism_Fizzles_Amid_Greek_Impasse_Short-Term_Reversal_Ahead.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.