Euro Heavy As Spain Bond Auction Disappoints, OECD Sees More Easing

By David Song, Currency Analyst

Talking Points
  • Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing
  • British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead
  • U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap

Euro: Spain Sells EUR 2.58BIn Bills, OECD Calls For More Easing

The Euro fell back from an overnight high of 1.3384 asSpain sold EUR 2.58B in three and six-month bills versus the EUR3.00B target, and it seems as though the second Long TermRefinancing Operation is not having the desired effect ascommercial banks across the euro-area continue to horde cash. Inlight of the recent developments, the Organization for EconomicCooperation and Development argued that the European CentralBank’s non-standard measures ‘may need to be widened tosupport the monetary transmission mechanism and maintain pricestability,’ and the group went onto say that ‘the lackof effective policy action would open the way to a severerecession’ as the region struggles to stem the risk forcontagion.

In response, ECB board member Jozef Makuch talked down speculation for more central bank loans and said that ‘the central bank considers as sufficient what it has done so far,’ but the Governing Council may have little choice but to expand its balance sheet further as the governments operating under the single currency become increasingly reliant on monetary support. Although the recent run up in the EURUSD negated our call for a head-and-shoulders top, it looks as though we’re getting a short-term correction in the euro-dollar following the failed run at 1.3400, and we may see the exchange rate track lower over the remainder of the week as the pair appears to be carving out a lower high going into mark. In turn, we may see the EURUSD revert back to the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100, but the weakening outlook for the euro-area may ultimately expose the 23.6% Fib around 1.2630-50 as European policy makers struggle to restore investor confidence.

British Pound: BoE’s MilesLays Out Exit Strategy, Range-Bound Prices Ahead

The British Pound marked another failed run at 1.6000, with theGBPUSD stalling at an overnight high of 1.5997, and the GBPUSDlooks primed for a short-term correction as it maintains the rangecarried over from the previous month. Meanwhile, Bank of Englandboard member David Miles laid out a tentative exit strategy as hesees the Monetary Policy Committee lifting the benchmark interestrate off the record-low before winding down the balance sheet, butwe may see Mr. Miles continue to push for more quantitative easingas he expects the ongoing slack within the real economy to dampenthe outlook for inflation. Nevertheless, it seems as though the BoEwill endorse a wait-and-see approach throughout the first-half ofthe year, and we may see the GBPUSD continue to face range-boundprice action as market participants weigh the outlook for monetarypolicy.

U.S. Dollar: Fed Rhetoric,Consumer Confidence On Tap

The greenback regained its footing on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index( Ticker: USDOLLAR ) advancing to a high of 9,944, and the reservecurrency may continue to gain ground during the North Americantrade should Fed officials talk down speculation for additionalmonetary support. As the central bank takes note of the more robustrecovery, we should see Fed officials strike an improved outlookfor the world’, but the economic docket may dampen the appealof the USD as we’re expecting to see household sentiment fallback from a one-year high in March. In turn, a dismal confidencereport could spark a bearish reaction in the dollar, and we may seethe USDOLLAR threaten the upward trend carried over from theprevious month as market participants maintain bets for moreQE3.

--- 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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FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Fed's William Dudley Testifies on Euro Crisis

USD

14:00

10:00

Fed's Steven Kamin Testifies on Euro Crisis

USD

14:00

10:00

Consumer Confidence (MAR)

70.0

70.8

USD

14:00

10:00

Richmond Fed Manufacturing Index (MAR)

18

20

GBP

14:30

10:30

BoE's Fisher, Broadbent Speaks on U.K. Economy

GBP

16:30

12:30

BoE's Spencer Dale Speaks on U.K. Economy

USD

16:35

12:35

Fed's Eric Rosengren Speaks on U.S. Economy

USD

16:45

12:45

Fed's Ben Bernanke Gives Lecture at George Washington U. (3 of 4)

GBP

17:00

13:00

BoE's Adam Posen Speaks on U.K. Economy

USD

17:20

13:20

Fed's Richard Fisher Speaks Monetary Policy

USD

19:45

15:45

Fed's Elizabeth Duke Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

JPY

23:50

Corporate Service Price (YoY) (FEB)

-0.4%

-0.6%

Largest decline since June.

CNY

1:30

Industrial Profits (YTD) (YoY) (FEB)

--

-5.2%

First decline since 2009.

JPY

5:00

Small Business Confidence (MAR)

--

48.7

Highest since March.

EUR

6:00

German Import Price Index (MoM) (FEB)

0.9%

1.0%

Slowest pace of growth since February 2010.

EUR

6:00

German Import Price Index (YoY) (FEB)

3.5%

3.5%

CHF

6:00

UBS Consumption Indicator (FEB)

--

0.87

Weakens for the second month.

EUR

7:00

German GfK Consumer Confidence Survey (APR)

6.1

5.9

Falls back from a yearly high.

GBP

10:00

CBI Reported Sales(MAR)

-5

0

Halts two months of negative readings,

USD

13:00

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

-0.30%

-0.04%

Smallest decline since July.

USD

13:00

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

-3.8%

-3.78%

USD

13:00

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

135.80

135.46
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/2012/03/27/Euro_Heavy_As_Spain_Bond_Auction_Disappoints_OECD_Sees_More_Easing.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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