Euro Eyes 1.3000 Amid Contagion Threats, Sterling To Maintain Trend

By David Song, Currency Analyst

Talking Points
  • Euro: Eyes 1.3000 Amid Renewed Threats For Contagion
  • British Pound: Threatens Upward Trend, BoE Maintains Current Policy
  • U.S. Dollar: Continues To Benefit From Risk Aversion, NFPs In Focus

Euro: Eyes 1.3000 AmidRenewed Threats For Contagion

The Euro extended the decline from earlier thisweek to reach a fresh monthly low of 1.3038 and the single currencymay continue to track lower over the next 24 hours of trading asthe fundamental outlook for the region deteriorates. Indeed, theyield tied to Spain’s 10-Year debt rose to the highest levelsince the European Central Bank conducted its first Long TermRefinancing Operation in December, and the threat of contagion islikely to put increased pressure on the Governing Council as thegovernments operating under the single currency become increasinglyreliant on monetary support.

At the same time, France sold EUR 8.439B in bonds yielding 2.98%, which compares to the 2.91% offered back in March, and renewed fears surrounding the debt crisis is likely to push the EURUSD lower over the near-term as European policy makers struggle to restore investor confidence. As the euro-dollar carves out a lower top coming into March, it seems as though it will only be a matter of time before we see 1.3000 give way, and a break below the key figure should expose the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50 as we maintain a bearish outlook for the pair. However, we may see the EURUSD track sideways throughout April should 1.3000 provide interim support, and the pair may continue to consolidate over the near-term as market participants weigh the prospects for future policy.

British Pound: Threatens UpwardTrend, BoE Maintains Current Policy

The British Pound slipped below the 50-Day SMA (1.5816) amid theslowdown in business outputs, but we may see the GBPUSD trackhigher over the remainder of the week as it maintains the upwardtrending channel from earlier this year. As expected, the Bank ofEngland refrained from releasing a policy statement aftermaintaining its current policy in April, but we may see the centralbank endorse a wait-and-see approach throughout the first-half ofthe year as it completes the GBP 325B in quantitative easing. Inturn, the policy meeting in May could set the tone for the rest ofthe year, and we may see the BoE continue to soften its dovish toneas MPC officials expect to see a more robust recovery in 2012. As aresult, we will stick to our bullish call for the GBPUSD, and thepair may continue to retrace the decline from the previous year asthe central bank looks to bring its easing cycle to anend.

U.S. Dollar: Continues To BenefitFrom Risk Aversion, NFPs In Focus

The greenback continued to gain ground onThursday, with the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) advancing to a fresh weekly high of 10,047, andthe reserve currency looks poised to appreciate further during theNorth American trade as the shift away from risk-taking behaviorgathers pace. As the jobless claims figures continue to reinforcean improved outlook for the U.S. labor market, there’scertainly a good chance for the highly anticipated Non-FarmPayrolls report to top market expectations, and an above-forecastprint could spark a sharp rally in the dollar as the developmentdampens speculation for more quantitative easing. In turn, weshould see the index continue to recoup the losses from March, andthe USDOLLAR looks poised to make another run at the 78.6% Fibaround 10,118 as the fundamental outlook for the world’slargest economy improves.

--- 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

CAD

14:00

10:00

Ivey Purchasing Managers Index s.a. (MAR)

67.3

66.5

GBP

14:00

10:00

NIESR Gross Domestic Product Estimate (MAR)

0.1%

Currency

GMT

Release

Expected

Actual

Comments

JPY

2:00

Tokyo Average Office Vacancies (MAR)

--

9.04

Lowest since December.

CNY

2:30

HSBC Purchasing Manager Index Services (MAR)

--

53.3

Declines for the first time since November.

CHF

7:00

Foreign Currency Reserves (MAR)

--

237.5B

Highest since December.

CHF

7:15

Consumer Price Index (MoM) (MAR)

0.4%

0.6%

Marks the biggest decline since July 2009.

CHF

7:15

Consumer Price Index (YoY) (MAR)

-1.1%

-1.0%

CHF

7:15

CPI - EU Harmonised (MoM) (MAR)

--

0.9%

CHF

7:15

CPI - EU Harmonised (YoY) (MAR)

--

-1.0%

GBP

8:30

Industrial Production (MoM) (FEB)

0.4%

0.4%

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

GBP

8:30

Industrial Production (YoY) (FEB)

-2.1%

-2.3%

GBP

8:30

Manufacturing Production (MoM) (FEB)

0.1%

-1.0%

Largest decline since April.

GBP

8:30

Manufacturing Production (YoY) (FEB)

0.1%

-1.4%

EUR

10:00

German Industrial Production s.a. (MoM) (FEB)

-0.5%

-1.3%

Biggest decline since December.

EUR

10:00

German Industrial Production n.s.a. and w.d.a. (YoY) (FEB)

0.3%

-1.0%

GBP

11:00

Bank of England Interest Rate Decision

0.50%

0.50%

Will complete QE over the course of the month.

GBP

11:00

Bank of England Asset Purchase Target

325B

325B

USD

11:30

Challenger Job Cuts (YoY) (MAR)

--

-8.8%

Biggest decline since November.

CAD

12:30

Net Change in Employment (MAR)

10.50K

82.3K

Largest advance since September 2008. Lowest jobless rate since September.

CAD

12:30

Unemployment Rate (MAR)

7.4%

7.2%

CAD

12:30

Full Time Employment Change (MAR)

--

70.0K

CAD

12:30

Part Time Employment Change (MAR)

--

12.4K

CAD

12:30

Participation Rate (MAR)

66.5

66.6

CAD

12:30

Building Permits (MoM) (FEB)

2.0%

7.5%

Two-month high.

USD

12:30

Initial Jobless Claims (MAR 31)

355K

357K

Lowest since April 2008.

USD

12:30

Continuing Claims (MAR 24)

3350K

3338K

Lowest since August 2008.
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/2012/04/05/Euro_Eyes_1.3000_Amid_Contagion_Threats_Sterling_To_Maintain_Trend.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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