Euro At Risk Amid Fears Of Prolonged Recession, Pound To Outperform

By David Song, Currency Analyst

Talking Points
  • Euro: Weighed By Fears Of Prolonged Recession, Remains Capped By 1.3400
  • British Pound: Eyes 23.6% Fib Ahead Of BoE Rate Decision
  • U.S. Dollar: Fed’s Fisher Curbs Speculation For QE3, Raises Rate Expectations

Euro: Weighed By Fears OfProlonged Recession, Remains Capped By 1.3400

The Euro weakened to 1.3314 on Monday as the14-year high jobless rate heightened concerns for a prolongedrecession, and the single currency may continue to give back theadvance from the previous month as the fundamental outlook for theregion turns increasingly bleak. At the same time, Italian PrimeMinister Mario Monti said the new government considered tapping theregion’s rescue fund amid the turmoil in the financialsystem, and the ongoing risk for contagion reinforces our bearishforecast for the Euro as the sovereign debt crisis continues todrag on the economy.

As the EU makes a greater push to balance its public finances, the major shift in fiscal policy certainly dampens the outlook for growth, and we may see the European Central Bank continue to shore up the region as the governments operating under the single currency become increasingly reliant on monetary support. Although the ECB is widely expected to keep the benchmark interest rate at 1.00% later this week, President Mario Draghi may talk up speculation for a potential rate cut, and a dovish policy statement could threaten the range-bound price action in the EURUSD as the central bank looks to extend its easing cycle. As the EURUSD marks another failed run at 1.3400, the pair looks poised for a move back towards the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100, but we are likely to see the euro face additional headwinds throughout the year as European policy makers struggle to swiftly address the risks surrounding the region.

British Pound: Eyes 23.6% Fib AheadOf BoE Rate Decision

The British Pound fell back from a fresh yearly high of 1.6062amid the shift in market sentiment, but the GBPUSD looks poised tomake another run at the 23.6% Fib from the 2009 low to high around1.6250 as the fundamental outlook for the U.K. improves. Althoughwe have the Bank of England interest rate decision on tap for laterthis week, the central bank is widely expected to maintain itscurrent policy in April, and market participants may show a mutedreaction to the event as the Monetary Policy Committee refrainsfrom releasing a policy statement. As the upward trending channelfrom earlier this year continues to take shape, the recent weaknessin the GBPUSD is likely to be short-lived, and we may see thesterling outperform throughout the year should the BoE look toconclude its easing cycle in 2012.

U.S. Dollar: Fed’s FisherCurbs Speculation For QE3, Raises Rate Expectations

Although the greenback gained ground against most of its majorcounterparts, the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) slipped to 9,923 amid the recent strength inthe Japanese Yen, but the bullish sentiment underlining the reservecurrency should gather pace as the Federal Reserve continues tocurb expectations for additional monetary support. Indeed, DallasFed President Richard Fisher said the FOMC has ‘doneenough’ as the economy is in ‘a much betterposition,’ but went onto say that it’s too early todiscuss tightening monetary policy amid the ongoing slack withinthe private sector. Indeed, it seems as though the Fed is pavingthe way to start normalizing policy later this year, and we shouldsee the dollar appreciate further in 2012 as interest rateexpectations pick up.

--- 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 James Bullard Speaks on Monetary Policy

--

--

USD

14:00

10:00

Construction Spending (MoM) (FEB)

0.7%

-0.1%

USD

14:00

10:00

ISM Manufacturing (MAR)

53.1

52.4

USD

14:00

10:00

ISM Prices Paid (MAR)

62.3

61.5

Currency

GMT

Release

Expected

Actual

Comments

GBP

23:01

Hometrack Housing Survey (MoM) (MAR)

--

0.2%

Rises for the first time since June 2010.

GBP

23:01

Hometrack Housing Survey (YoY) (MAR)

--

-1.0%

AUD

23:30

AiG Performance of Manufacturing Index (MAR)

--

49.5

Contracts for the third time in the last six months.

JPY

23:50

Tankan Large Manufacturers Index (1Q)

-1

-4

Fails to grow for the first time since 1Q 2011.

JPY

23:50

Tankan Large Manufacturers Outlook (1Q)

2

-3

JPY

23:50

Tankan Non-Manufacturing Index (1Q)

5

5

JPY

23:50

Tankan Non-Manufacturing Outlook (1Q)

6

5

JPY

23:50

Tankan Large All Industry Capex (1Q)

0.8%

0.0%

AUD

0:30

TD Securities Inflation (MoM) (MAR)

--

0.5%

Slowest pace of growth since October 2009.

AUD

0:30

TD Securities Inflation (YoY) (MAR)

--

1.8%

AUD

1:30

Building Approvals (MoM) (FEB)

0.5%

-7.8%

Biggest decline since October.

AUD

1:30

Building Approvals (YoY) (FEB)

-5.3%

-15.2%

JPY

5:00

Vehicle Sales (YoY) (MAR)

--

78.2%

Largest advance since the series began in 1980.

AUD

6:30

RBA Commodity Price Index (MAR)

--

99.7

Slowest pace of growth since February 2010.

AUD

6:30

RBA Commodity Index SDR (YoY) (MAR)

--

2.7%

CHF

7:15

Retail Sales (Real) (YoY) (FEB)

--

0.8%

Rises for the fifth month.

CHF

7:30

SVME-Purchasing Managers Index (MAR)

49.5

51.1

Expands for the first time since August.

EUR

7:45

Italian Purchasing Manager Index Manufacturing (MAR)

47.6

47.9

Contracts for the fourth time in the last six months.

EUR

7:50

French Purchasing Manager Index Manufacturing (MAR F)

47.6

46.7

EUR

7:55

German Purchasing Manager Index Manufacturing (MAR F)

48.1

48.4

EUR

8:00

Euro-Zone Purchasing Manager Index Manufacturing (MAR F)

47.7

47.7

EUR

8:00

Italian Unemployment Rate s.a. (4Q)

8.7%

8.8%

Highest since 4Q 2001.

EUR

8:00

Italian Unemployment Rate s.a. (FEB P)

9.3%

9.3%

GBP

8:30

Purchasing Manager Index Manufacturing (MAR)

50.7

52.1

Fastest pace of growth since June.

GBP

8:30

Bank of England Housing Equity Withdrawal (Pounds) (4Q)

-8.2B

-8.5B

Falls 8.5B for the second quarter.

EUR

9:00

Euro-Zone Unemployment Rate (FEB)

10.8%

10.8%

Highest since June 1997.
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/2012/04/02/EUR_Fundamentals_Instill_Bearish_Forecast_GBP_Outlook_Hinges_On_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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