USD Fundamentals Support Bullish View, Euro At Risk Of Major Selloff

By David Song, Currency Analyst

Talking Points
  • U.S. Dollar: Rally To Gather Pace On Policy Outlook, Index Eyes 78.6% Fib
  • Euro: EU Approves Second Bailout For Greece, Head-and-Shoulders Top In Play
  • British Pound: Poised To Track Sideways Ahead of BoE Minutes

U.S. Dollar: Rally To Gather Pace On Policy Outlook, Index Eyes 78.6% Fib

The greenback extended the advance from earlier this week, with the Dow Jones- FXCM U.S. Dollar Index (Ticker: USDOLLAR ) rallying to a fresh monthly high of 10,060, and we should see the greenback continue to recoup the losses from the previous year amid the shift in the policy outlook. As the Federal Open Market Committee curbs speculation for more quantitative easing, the central bank may see scope to conclude its easing cycle in 2012, and we will maintain our bullish call for the USD as the fundamental outlook for the world’s largest economy improves.

As the FOMC takes note of the more robust recovery, we should see the committee start thinking about normalizing monetary policy, and the correlation between risk and the dollar is expected to breakdown throughout the year as the central bank raises its fundamental assessment for the region. In turn, the USDOLLAR looks poised to make another run at the 78.6% Fibonacci retracement around 10,118, but we may see a small pullback before a larger move to the upside as the relative strength index approaches overbought territory. Nevertheless, as Fed Chairman Ben Bernanke is scheduled to speak later today, comments from the central bank head could shake up the currency market, but we may see Mr. Bernanke strike a less dovish tone for monetary policy as the recovery gets on a more sustainable path.

Euro: EU Approves Second Bailout For Greece, Head-and-Shoulders Top In Play

The Euro struggled to hold its ground on Wednesday, with the EURUSD falling to a fresh monthly low of 1.3030, and the exchange rate looks poised to weaken further over the near-term as it continues to carve out a head-and-shoulders top in March. As the EURUSD fails to hold above the 50-Day SMA (1.3092), we may see the euro-dollar threaten interim support around 1.3000, and the single currency may continue to give back the advance from earlier this year as European policy makers struggle to restore investor confidence. Although the EU formally approved the second bailout package for Greece, the ongoing turmoil in the financial system paired with the weakening outlook for the euro-area reinforces a bearish outlook for the Euro, and we may see European policy makers take additional steps to address the risks surrounding the region as the fundamental outlook remains bleak. In turn, we should see the EURUSD track lower over the near-term, and the pair looks poised to make another run at the 23.6% Fib from the 2009 high to the 2010 low around 1.2630-50 as it searches for support.

British Pound: Poised To Track Sideways Ahead of BoE Minutes

The British Pound pared the overnight decline to 1.5648 despite the larger-than-expected rise in U.K. jobless claims, and the sterling may track sideways over the remainder of the week as market participants look forward to the Bank of England policy meeting minutes on tap for the following week. As the BoE reverts back to a wait-and-see approach, the central bank should strike a rather neutral tone for monetary policy, but we may see the Monetary Policy Committee talk down speculation for additional monetary support as the group expects to see a more robust recovery this year. In turn, we may see the rebound from 1.5601 gather pace going into the following week, and the GBPUSD may make another run at 1.6000 should the BoE soften its dovish tone for monetary policy.

--- 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

14:00

10:00

Fed Chairman Ben Bernanke Speaks on U.S. Economy

--

--

GBP

13:45

9:45

BoE's Andy Haldane Speaks on Financial System

--

--

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (MAR 9)

1600K

832K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (MAR 9)

-1000K

-396K

USD

14:30

10:30

DOE U.S. Distillate Inventory (MAR 9)

-1500K

-1944K

NZD

21:00

17:00

ANZ Job Ads (MoM) (FEB)

--

-2.7%

NZD

21:30

17:30

Business NZ Performance of Manufacturing Index (FEB)

--

50.5

Currency

GMT

Release

Expected

Actual

Comments

AUD

23:30

Westpac Consumer Confidence (MAR)

--

-5.0%

Weakens for the first time since December.

AUD

23:30

Westpac Consumer Confidence Index (MAR)

--

96.1

JPY

23:50

BSI Large All Industry (QoQ) (1Q)

--

-2.7%

Declines for the second straight quarter.

JPY

23:50

BSI Large Manufacturing (QoQ) (1Q)

--

-7.3%

AUD

0:30

Dwelling Starts (4Q)

-3.0%

-6.9%

Largest decline since 3Q 2010.

NZD

2:00

Non Resident Bond Holdings (FEB)

--

60.3%

Highest since November.

JPY

4:30

Industrial Production (MoM) (JAN F)

--

1.9%

Rises for the second straight month.

JPY

4:30

Industrial Production (YoY) (JAN F)

--

-1.3%

JPY

4:30

Capacity Utilization (MoM) (JAN F)

--

3.4%

JPY

6:00

Machine Tool Orders (YoY) (FEB F)

--

-8.6%

Declines for the second month.

GBP

9:30

Jobless Claims Change (FEB)

5.0K

7.2K

Rises for the 12 th month, jobless rate highest since 1995.

GBP

9:30

Claimant Count Rate (FEB)

5.0%

5.0%

GBP

9:30

ILO Unemployment Rate (3M) (JAN)

8.4%

8.4%

GBP

9:30

Average Weekly Earnings inc Bonus (3MoY) (JAN)

1.9%

1.4%

Slowest pace of growth since July 2010.

GBP

9:30

Average Weekly Earnings ex Bonus (3MoY) (JAN)

1.9%

1.7%

EUR

10:00

Euro-Zone CPI (MoM) (FEB)

0.5%

0.5%

Holds steady for the third month.

EUR

10:00

Euro-Zone CPI (YoY) (FEB)

2.7%

2.7%

EUR

10:00

Euro-Zone CPI - Core (YoY) (FEB)

1.6%

1.5%

EUR

10:00

Euro-Zone Industrial Production s.a. (MoM) (JAN)

0.5%

0.2%

Rises for the first time since October.

EUR

10:00

Euro-Zone Industrial Production w.d.a. (YoY) (JAN)

-0.8%

-1.2%

CHF

10:00

ZEW Survey (Expectations) (MAR)

--

0.0

Highest since April.

USD

11:00

MBA Mortgage Applications (MAR 9)

--

-2.4%

Weakens for the fifth week.

CAD

12:30

Capacity Utilization Rate (4Q)

81.6%

80.5%

Highest since 3Q 2007.

USD

12:30

Import Price Index (MoM) (FEB)

0.6%

0.4%

Slowest pace of growth since December 2010.

USD

12:30

Import Price Index (YoY) (FEB)

5.8%

5.5%

USD

12:30

Current Account Balance (4Q)

-$114.2B

-$124.1B

Largest deficit since 2Q 2011.
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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/03/14/USD_Fundamentals_Support_Bullish_View_Euro_At_Risk_Of_Major_Selloff.html