Euro Searches For Support As Fears Resurface, Sterling Trend In Focus

By David Song, Currency Analyst

Talking Points
  • Euro: Spain Bond Auction Disappoints, ECB Keeps Door Open For More Easing
  • British Pound: Maintains Upward Trending Channel Ahead Of BoE
  • U.S. Dollar: Index Hits Fresh Monthly High, To Consolidate Ahead Of NFPs

Euro: Spain Bond AuctionDisappoints, ECB Keeps Door Open For More Easing

The Euro slipped to a fresh monthly low of 1.3106as Spain sold EUR 2.59B in bonds versus the EUR 3.5B target, and itseems as though the European Central Bank will continue to carryout its easing cycle in 2012 as the region continues to face athreat for a prolonged recession. Indeed, the ECB left the dooropen to expand monetary policy further after holding the benchmarkinterest rate at 1.00%, and it seems as though the GoverningCouncil is keeping inflationary concerns on the backburner as thegrowth outlook remains subject to downside risks.

Indeed, ECB President Mario Draghi argued that it is premature to discuss an exit strategy as the central bank continues to assess the impact of the Long Term Refinancing Operations, but it seems as though the second LTRO is not having the desired effect as banks across Europe continue to horde cash. As the governments operating under the single currency become increasingly reliant on monetary support, the ECB may have little choice but to ease policy further, and we may see Mr. Draghi look to target the benchmark interest rate as the fundamental outlook for the region remains bleak. In turn, we maintain our bearish outlook for the single currency, but we may see a short-term correction in the exchange rate as the EURUSD comes up against the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100. Nevertheless, 1.3000 remains key as the pair maintains the range from earlier this year, and we will wait for a break and a close below the figure to see a major reversal in the euro-dollar.

British Pound: Maintains UpwardTrending Channel Ahead Of BoE

The British Pound extended the decline from earlier this weekamid the shift away in risk-taking behavior, but we expect to see arebound in the GBPUSD as the pair maintains the upward trendingchannel from earlier this year. Although we have the Bank ofEngland interest rate decision on tap for Thursday, currencytraders may show a greater reaction to the fundamental developmentson tap for the next 24-hours of trading as the central bankrefrains from releasing a policy statement. In light of the recentdevelopments coming out of the U.K., the stronger-than-expecteddata suggests that the recovery will gather pace throughout 2012,and we may see the sterling outperform against its majorcounterparts should the BoE look to conclude its easing cycle laterthis year. In turn, we are still looking for another run at the23.6% Fib from the 2009 low to high around 1.6250, and we may seethe GBPUSD continue to retrace the decline from the previous yearas the BoE continues to soften its dovish tone for monetarypolicy.

U.S. Dollar: Index Hits FreshMonthly High, To Consolidate Ahead Of NFPs

The greenback continued to appreciate onWednesday, with the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) climbing to a fresh monthly high of 10,037, andthe reserve currency may continue to track higher over theremainder of the week as market participants scale back theirappetite for risk. However, the weaker-than-expected ISMNon-Manufacturing report appears to be dampening demands for thedollar as it limits the Fed’s scope to start normalizingmonetary policy, and we may see the greenback consolidate ahead ofthe highly anticipated Non-Farm Payrolls report as we’reexpecting to see a slower rate of job growth in March. However,should NFPs top market forecast, a more robust recovery in thelabor market should prop up the greenback, and we may see theUSDOLLAR make another run at the 78.6% Fib around 10,118 as betsfor QE3 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

14:30

10:30

DOE U.S. Crude Oil Inventories (MAR 30)

2500K

7102K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (MAR 30)

-1400K

-3537K

USD

14:30

10:30

DOE U.S. Distillate Inventory (MAR 30)

-500K

-711K

USD

15:00

11:00

Fed's John Williams Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

GBP

23:01

BRC Shop Price Index (YoY) (MAR)

1.5%

1.5%

Fastest pace of growth since December.

AUD

23:30

AiG Performance of Service Index (MAR)

--

47.0

Contracts for second month.

AUD

1:30

Trade Balance (Australian dollar) (FEB)

1100M

-480M

Marks second deficit.

EUR

7:45

Italian Purchasing Manager Index Services (MAR)

44.4

44.3

Contracts for the second consecutive month.

EUR

7:50

French Purchasing Manager Index Services (MAR F)

50.0

50.1

EUR

7:55

German Purchasing Manager Index Services (MAR F)

51.8

52.1

EUR

8:00

Euro-Zone Purchasing Manager Index Services (MAR F)

48.7

49.2

EUR

8:00

Euro-Zone Purchasing Manager Index Composite (MAR F)

48.7

49.1

EUR

8:00

Italian Deficit to GDP (YTD) (4Q)

--

3.8%

Narrows for the second quarter.

GBP

8:30

Purchasing Manager Index Services (MAR)

53.4

55.3

Two-month high.

GBP

8:30

Official Reserves (Changes) (MAR)

--

-$1132M

Lowest since December.

EUR

9:00

Euro-Zone Retail Sales (MoM) (FEB)

-0.2%

-0.1%

Falls for the fifth time in the last six-months.

EUR

9:00

Euro-Zone Retail Sales (YoY) (FEB)

-1.1%

-2.1%

EUR

10:00

German Factory Orders s.a. (MoM) (FEB)

1.5%

0.3%

Rises for the third time in the last six-months.

EUR

10:00

German Factory Orders n.s.a. (YoY) (FEB)

-5.5%

-6.1%

USD

11:00

MBA Mortgage Applications (MAR 30)

--

4.8%

First rise since the beginning of February.

EUR

11:45

European Central Bank Interest Rate Decision

1.00%

1.00%

Keeps door open for more easing.

USD

12:15

ADP Employment Change (MAR)

206K

209K

Tops 200K for second month.

USD

14:00

ISM Non-Manufacutring Composite (MAR)

56.8

56.0

Slowest pace of growth since December.
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/2012/04/04/Euro_Searches_For_Support_As_Fears_Resurface_Sterling_Trend_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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