Euro Relief Rally To Set Lower Top, Sterling Eyes Fresh Highs

By David Song, Currency Analyst

Talking Points
  • Euro: ECB Softens Dovish Tone, Italy Bond Auction Disappoints
  • British Pound: Poised For Fresh Yearly High As Upward Trend Gathers Pace
  • U.S. Dollar: Index Eyes 9,900 For Support, Fed Officials In Focus

Euro: ECB Softens Dovish Tone, Italy Bond Auction Disappoints

The Euro climbed to a fresh weekly high of 1.3175 as the European Central Bank pledged to ‘ address upside risks to medium-term price stability in a firm and timely manner ,’ but we are likely to see the Governing Council take additional steps to shore up the ailing economy as the sovereign debt crisis continues to heighten the risk for a prolonged recession. Indeed, Italy sold EUR 2.88B in 3-year bonds versus the EUR 3.00B target, while the government offered 3.89% on its debt, which compares to the 2.76% yield seen in March.

Meanwhile, ECB board member Joerg Asmussen argued that commercial banks in Ireland need to ‘substantial’ reduce their reliance on central bank funding, and it seems as though the Governing Council is looking to preserve a wait-and-see approach throughout the remainder of the year as it maintains its one and only mandate to ensure price stability. However, the ECB may have little choice but to expand policy further as the debt crisis continues to drag on investor confidence, and the threat for contagion may bring about another wave of non-standard measures as the governments operating under the single currency become increasingly reliant on monetary support. As there appears to be a descending triangle in the EURUSD, we will maintain our bearish outlook for the pair, and we may see the pair carve out another lower top ahead of May as the relative strength index maintains the downward trend from earlier this year. In turn, the short-term rebound in the exchange rate may provide a selling opportunity for FX traders, and we should see 1.3000 ultimately give way as the debt crisis continues to dampen the fundamental outlook for the region.

British Pound: Poised For Fresh Yearly High As Upward Trend Gathers Pace

The British Pound extended the advance from earlier this week amid the rise in risk-taking behavior, and we expect to see fresh yearly highs in the GBPUSD as the upward trending channel continues to take shape. However, as the economic docket is expected to show easing price pressures in the U.K., we may see the GBPUSD consolidate going into the end of the week, and we will look to buy the pair on a pullback as it carves out a higher low in April. As the Bank of England is scheduled to release its policy meeting minutes next week, the fresh batch of central bank rhetoric could set the stage for another move to the upside, and we may see the sterling outperform against its major counterparts should the Monetary Policy Committee continue to soften its dovish tone for monetary policy.

U.S. Dollar: Index Eyes 9,900 For Support, Fed Officials In Focus

The greenback tumbled lower on Thursday, with the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) slipping to a fresh weekly low of 9,913, and the reserve currency may track lower throughout the North American trade as the U.S. equity market continues to pare the decline from earlier this week. As the rise in risk-taking behavior gathers pace, we may see the dollar index fall back towards 9,900 to test for interim support, and the slew of central bank rhetoric on tap for later today may help to prop up the greenback should Fed officials talk down speculation for additional monetary support. Indeed, we will be closely watching the remarks from FOMC voting members William Dudley and Sarah Bloom Raskin as central bank officials take note of the more robust recovery, and we may see the committee continue to soften its dovish tone for monetary policy as the fundamental outlook for the world’s largest 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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Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:00

11:00

Fed's William Dudley Speaks on U.S. Economy

EUR

15:45

11:45

ECB's Carlos Costa Speaks on Euro Economy

USD

16:30

12:30

Fed's Charles Plosser Speaks on U.S. Economy

USD

17:00

13:00

Fed's Narayana Kocherlakota Speaks on U.S. Economy

GBP

18:00

14:00

BoE's Adam Posen Speaks on Financial Stability

USD

19:30

15:30

Fed's Sarah Bloom Raskin Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

NZD

22:30

Business NZ Performance of Manufacturing Index (MAR)

--

54.5

Slows for the first time since June.

NZD

22:45

Card Spending - Retail (MoM) (MAR)

0.4%

0.3%

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

NZD

22:45

Card Spending - Total (MoM) (MAR)

0.5%

-0.2%

JPY

23:50

Japan Money Stock M2+CD (YoY) (MAR)

2.8%

3.0%

Rises for the first time since December.

JPY

23:50

Japan Money Stock M3 (YoY) (MAR)

2.5%

2.6%

JPY

23:50

Domestic Corporate Goods Price Index (MoM) (MAR)

0.4%

0.6%

Holds steady for the second month.

JPY

23:50

Domestic Corporate Goods Price Index (YoY) (MAR)

0.4%

0.6%

NZD

0:00

QV House Prices (YoY) (MAR)

--

3.0%

Fastest pace of growth since August 2010.

AUD

1:00

Consumer Inflation Expectation (APR)

--

3.3%

Highest since July 2011.

AUD

1:30

Employment Change (MAR)

6.5K

44.0K

Biggest rise since January, jobless rate holds steady for second month.

AUD

1:30

Unemployment Rate (MAR)

5.3%

5.2%

AUD

1:30

Full Time Employment Change (MAR)

--

15.8K

AUD

1:30

Part Time Employment Change (MAR)

--

28.2K

AUD

1:30

Participation Rate (MAR)

65.3%

65.4%

EUR

5:30

French CPI (MoM) (MAR)

0.6%

0.8%

Headline reading holds steady for the third month.

EUR

5:30

French CPI (YoY) (MAR)

2.1%

2.3%

EUR

5:30

French CPI - EU Harmonised (MoM) (MAR)

0.7%

0.9%

EUR

5:30

French CPI - EU Harmonised (YoY) (MAR)

2.3%

2.6%

EUR

5:30

French CPI Ex Tobacco Index (MAR)

124.38

124.63

EUR

6:45

French Current Account (euros) (FEB)

--

-5.0B

Largest deficit since May 2011.

GBP

8:30

Visible Trade Balance (Pounds) (FEB)

-7.650B

-8.772B

Largest deficit since November.

GBP

8:30

Trade Balance Non EU (Pounds) (FEB)

-3.825B

-5.017B

GBP

8:30

Total Trade Balance (Pounds) (FEB)

-2.000B

-3.396B

EUR

9:00

Euro-Zone Industrial Production s.a. (MoM) (FEB)

-0.2%

0.5%

Rises for the first time since August.

EUR

9:00

Euro-Zone Industrial Production w.d.a. (YoY) (FEB)

-1.8%

-1.8%

CAD

12:30

New Housing Price Index (MoM) (FEB)

0.2%

0.3%

Fastest pace of growth since November.

CAD

12:30

New Housing Price Index (YoY) (FEB)

--

2.3%

CAD

12:30

International Merchandise Trade (Canadian dollar) (FEB)

2.30B

0.29B

Surplus narrows for the second month.

USD

12:30

Trade Balance (FEB)

-$52.0B

-$46.0B

Narrows as oil imports fell the most in 15-years.

USD

12:30

Producer Price Index (MoM) (MAR)

0.3%

0.0%

Slowest pace of growth since June 2010.

USD

12:30

Producer Price Index (YoY) (MAR)

3.1%

2.8%

USD

12:30

PPI Ex Food & Energy (MoM) (MAR)

0.2%

0.3%

USD

12:30

PPI Ex Food & Energy (YoY) (MAR)

2.8%

2.9%

USD

12:30

Initial Jobless Claims (APR 7)

355K

380K

Highest since January.

USD

12:30

Continuing Claims (MAR 31)

3328K

3251K

Lowest since July 2008.
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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/04/12/Euro_Relief_Rally_To_Set_Lower_Top_Sterling_Eyes_Fresh_Highs.html