Euro Holds Lower Top Going Into April, Pound Breaks Out Ahead Of BoE

By David Song, Currency Analyst

Talking Points
  • Euro: EU Caps Firewall at EUR 800B, All Eyes On ECB
  • British Pound: Breaks Out Of Range, BoE Rate Decision On Tap
  • U.S. Dollar: To Maintain Trend As Fed Continues To Soften Dovish Rhetoric

Euro: EU Caps Firewall atEUR 800B, All Eyes On ECB

The E URUSD rallied to an overnight high of 1.3375 as theEU ramped up the bailout fund to EUR 800B, but the single currencyis likely to face additional headwinds in April as the fundamentaldevelopments coming out of the euro-area continues to fall short ofmarket expectations. Indeed, there was speculation that the groupwould set the cap at EUR 940B amid the untapped EUR 240B in theEuropean Financial Stability Facility, but it seems as though thegovernments operating under the single currency are becomingincreasingly reliant on monetary support as they soften theirapproach in addressing the debt crisis.

Meanwhile, former European Central Bank board member Juergen Stark, who resigned over the bond-purchasing program, said he did not expect to see so many demands for the Long Term Refinancing Operations, and held a cautious tone about the quality of collateral accepted by the ECB as the ballooning balance sheet comes under scrutiny. However, as the Euro Zone continues to face a risk for a prolonged recession, we are likely to see the Governing Council take additional steps to shore up the ailing economy, and the EURUSD looks poised to track lower in the month ahead as it carves out a lower top this week. As the euro-dollar fails to push back above 1.3400, we should see the exchange rate consolidate in the days ahead, and the pair may revert back the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 to test for near-term support. However, as the data coming out of Europe continues to disappoint, a slew of dismal developments could spark a sharp selloff in the exchange rate, and we may see the EURUSD threaten 1.3000 over the near-term as European policy makers struggle to restore investor confidence. At the same time, market participants may show a muted reaction to the ECB rate decision as the central bank is widely expected to preserve a wait-and-see approach, and we may see President Mario Draghi strike a balanced tone for the region as policy makers continue to monitor the impact of the second LTRO.

British Pound: Breaks Out Of Range,BoE Rate Decision On Tap

The British Pound broke out of its range as the GBPUSD rallied toa fresh yearly high of 1.6036, and the exchange rate may continueto push higher in April should the Bank of England continue tosoften its dovish tone for monetary policy. As the BoE is widelyexpected to maintain its current policy next week, we should seethe Monetary Policy Committee refrain from releasing a statement onThursday, but the meeting minutes may reveal a shift in the policyoutlook as central bank officials anticipate to see a more robustrecovery this year. In turn, we may see the GBPUSD make another runat the 23.6% Fib from the 2009 low to high around 1.6250, but theMPC may keep the door open to expand its balance sheet further asthe recession in the euro-area threatens the economic recovery inthe U.K.

U.S. Dollar: To Maintain TrendAs Fed Continues ToSoften Dovish Rhetoric

The greenback lost ground on Friday, with the Dow Jones-FXCM U.S. Dollar Index( Ticker: USDOLLAR ) slipping to a low of 9,908, but the recentweakness is likely to be short-lived as the Federal Reservecontinues to soften its dovish tone for monetary policy. RichmondFed President Jeffery Lacker, who also serves on the FOMC thisyear, talked down speculation for additional monetary support,stating that there is no ‘rationale for furthereasing,’ and we may see the central bank conclude its easingcycle in 2012 as the economic recovery gets on a more sustainablepath. In turn, we should see the USDOLLAR maintain the upward trendfrom earlier this year, and we will be looking for additionaldollar strength in April as speculation for another round ofquantitative easing dissipate.

--- 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

13:45

9:45

Chicago Purchasing Manager (MAR)

63.0

64.0

USD

13:55

9:55

U. of Michigan Confidence (MAR F)

74.8

74.3

USD

14:00

10:00

NAPM-Milwaukee (MAR)

58.0

58.6
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/2012/03/30/Euro_Holds_Lower_Top_Going_Into_April_Pound_Breaks_Out_Ahead_Of_BoE.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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