Euro Carves Lower Top Ahead Of EU Summit, Sterling Range In Focus

By David Song, Currency Analyst

Talking Points
  • Euro: Carves Lower Top, Firewall To Total EUR 700B-940B
  • British Pound: 1.6000 Continues To Provide Resistance, Support at 1.5600
  • U.S. Dollar: Index Maintains Upward Trend As Fed Softens Dovish Tone

Euro: Carves Lower Top,Firewall To Total EUR 700B-940B

The Euro pared the overnight to 1.3373 as marketparticipants scaled back their appetite for risk and the EURUSDlooks poised to track lower over the remainder of the week asEuropean policy makers struggle to restore investor confidence.Italian Prime Minister Mario Monti suggested that the sovereigndebt crisis is ‘almost over’ as the governmentsoperating under the single currency increase their efforts to stemthe risk for contagion, while an EU official said the overallfirewall is likely to total EUR 700B-940B as the group looks toutilize the remaining EUR 240B in the European Financial StabilityFacility.

However, European Central Bank board member Jens Weidmann argued that increasing the scope of the rescue fund will not bring about ‘a lasting solution to the crisis,’ and warned that ‘once a central bank becomes involved in fiscal policy, it eventually loses its independence and its credibility as an inflation-fighter.’ As the ECB sticks to its one and only mandate to ensure price stability, it seems as though the central bank is looking to bring its easing cycle to an end, but the Governing Council may have little choice but to ease policy further as the fundamental outlook for the region remains bleak. Indeed, the EURUSD appears to have carved a lower top this week as it fails to push back above 1.3400, and the pair may work its way back towards 1.3000 to test for near-term support. However, the key figure may give out going into April as the EU Summit comes into focus, and the developments coming out of the meeting may weigh on the exchange rate should we see the group struggle to meet on common ground.

British Pound: 1.6000 Continues ToProvide Resistance, Support at 1.5600

The British Pound continued to give back the advance from earlierthis month following the failed run at 1.6000, and the GBPUSD maycome up against 1.5600 as it maintains the range-bound price actioncarried over from the previous month. However, as the final 4Q GDPreport shows a larger-than-expected decline in the growth rate,speculation for additional monetary support may push the GBPUSDlower in April, and the sterling may struggle to maintain theadvance from earlier this year as the Bank of England keeps thedoor open to expand its asset purchase program beyond the GBP 325Btarget. However, as BoE officials expect to see a more robustrecovery later this year, it looks as though the MPC will preservea wait-and-see approach throughout the first-half of 2012, and thepound-dollar may continue to track sideways in the month ahead asmarket participants weigh the prospects for futurepolicy.

U.S. Dollar: Index MaintainsUpward Trend As Fed Softens Dovish Tone

The greenback continued to gain ground on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index( Ticker: USDOLLAR ) rallying to a high of 9,994, and the reservecurrency may appreciate further throughout the North American tradeas the shift away from risk-taking behavior gathers pace. As thedollar index maintains the upward trend from earlier this year, theshort-term rebound should gather pace over the remainder of theweek, and we maintain a bullish outlook for the greenback as theFed continues to soften its dovish tone for monetary policy. Inlight of the recent comments by the Fed, it appears as though theFOMC has limited scope to expand its balance sheet further, and weshould see the committee look to normalize monetary policy laterthis year as central bank officials take note of the more robustrecovery.

--- 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

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:30

10:30

DOE U.S. Crude Oil Inventories(MAR 23)

2550K

-1162K

USD

14:30

10:30

DOE U.S. Gasoline Inventories(MAR 23)

-1550K

-1214K

USD

14:30

10:30

DOE U.S. Distillate Inventory(MAR 23)

-500K

1763K

EUR

15:30

11:30

ECB's Vitor Constancio Speaks on Euro Economy

Currency

GMT

Release

Expected

Actual

Comments

EUR

5:30

French GDP (QoQ) (4Q F)

0.2%

0.2%

Expands for second quarter.

EUR

5:30

French GDP (YoY) (4Q F)

1.4%

1.3%

EUR

8:00

Euro-Zone M3 s.a. (3M) (FEB)

2.2%

2.3%

Fastest pace of growth since November.

EUR

8:00

Euro-Zone M3 s.a. (YoY) (FEB)

2.4%

2.8%

GBP

8:30

Gross Domestic Product (QoQ) (4Q F)

-0.2%

-0.3%

Contracts for the second time in 2011.

GBP

8:30

Gross Domestic Product (YoY) (4Q F)

0.7%

0.5%

GBP

8:30

Current Account (Pounds) (4Q)

-8.4B

-8.5B

Smallest deficit since 2Q.

GBP

8:30

Total Business Investment (QoQ) (4Q F)

-5.6%

-3.3%

Declines for the first time since the first quarter.

GBP

8:30

Total Business Investment (YoY) (4Q F)

-1.9%

1.6%

USD

11:00

MBA Mortgage Applications (MAR 23)

--

-2.7%

Weakens for the seventh week.

EUR

12:00

German CPI (MoM) (MAR P)

0.3%

0.3%

Slowest pace of growth since January.

EUR

12:00

German CPI (YoY) (MAR P)

2.2%

2.1%

EUR

12:00

German CPI - EU Harmonised (MoM) (MAR P)

0.4%

0.4%

EUR

12:00

German CPI - EU Harmonised (YoY) (MAR P)

2.3%

2.3%

USD

12:30

Durable Goods Orders (FEB)

3.0%

2.2%

Rises for the third time in the last six months.

USD

12:30

Durables ex Transportation (FEB)

1.7%

1.6%

USD

12:30

Non-Defense Capital Goods Orders ex Aircrafts (FEB)

1.5%

1.2%

USD

12:30

Non-Defense Capital Goods Shipment ex Aircrafts (FEB)

0.9%

1.4%
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/2012/03/28/Euro_Carves_Lower_Top_Ahead_Of_EU_Summit_Sterling_Range_In_Focus.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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