Bearish Euro Formation Taking Shape, Sterling Threatens Upward Trend

By David Song, Currency Analyst

Talking Points
  • Euro: Slips Below 1.3000 As Borrowing Costs In Spain Top Pre-LTRO Levels
  • British Pound: Threatens Upward Trend, Range-Bound Price Ahead
  • U.S. Dollar: Risk Sentiment Turns Around, Fed Rhetoric In Focus

Euro: Slips Below 1.3000 AsBorrowing Costs In Spain Top Pre-LTRO Levels

The Euro slipped to a fresh monthly low of 1.2994as the yield tied to Spain’s 10-Year debt climbed to thehighest level since the European Central Bank conducted its firstLong-Term Refinancing Operation in December, and we should see theGoverning Council take additional steps to shore up the ailingeconomy as the governments operating under the single currencybecome increasingly reliant on monetary support. Indeed, Europeanpolicy makers are looking to broaden the powers of the ECB as thesovereign debt crisis continues to drag on the real economy andPresident Mario Draghi may have little choice but to expand thebalance sheet further as the EU argues against strengthen thebailout funds for the region.

As the LTRO’s appear to be having alimited impact, European Union Economic and Monetary AffairsCommissioner Olli Rehn called for ‘s ignificant restructuring efforts ’ across the commercial banks in Europe,but we may see financial institutions continue to horde cash as theheightening risk for contagion continues to dampen the fundamentaloutlook for the region. As the descending triangle in the EURUSDcontinues to take shape, the pair appears to have carved out alower top 1.3200, and the bearish formation may generate a sharpselloff in the exchange rate as price action approaches the apex.Nevertheless, we are waiting for a close below 1.3000 to see thedownward momentum gather pace, and we expect the pair to fall backtowards the 23.6% Fibonacci retracement from the 2009 high to the2010 low around 1.2630-50 as it struggles to maintain the advancefrom earlier this year.

British Pound: Threatens UpwardTrend, Range-Bound Price Ahead

The British Pound pared the overnight decline to 1.5818 tomaintain the range-bound price action from earlier this month, andthe pair appears to be building a short-term base to make anotherrun at 1.6000. As the GBPUSD struggles to maintain the upwardtrending channel from earlier this year, we may see the pair tracksideways over the near-term, but the Bank of England Minutes mayinstill a bullish outlook for the sterling should the central bankcontinue to soften its dovish tone for monetary policy. Althoughboard members David Miles and Adam Posen are expected to vote foranother GBP 25B in quantitative easing, the majority of theMonetary Policy Committee may strike an improved outlook for theregion, and the central bank may endorse a wait-and-see approachthroughout 2012 as BoE officials anticipate to see a strongerrecovery later this year. In turn, we may see the GBPUSD holdsteady ahead of the BoE Minutes, but the fresh batch of centralbank rhetoric should heavily influence the British Pound as marketparticipants weigh the prospects for future policy.

U.S. Dollar: Risk Sentiment TurnsAround, Fed Rhetoric In Focus

The greenback continued to recoup the lossesfrom earlier this month, with the with the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) climbing to an overnight high of 9,998, but thereserve currency is struggling to hold its ground as there appearsto be a shift in market sentiment. As the U.S equity market openshigher, we may see risk sentiment rebound throughout the NorthAmerican trade, but the slew of Fed rhetoric on tap for later todaymay prop up the dollar should the central bank continue to cast animproved outlook for the world’s largest economy. Indeed, theresilience in private sector consumption may encourage the FOMC tosoften its dovish tone for monetary policy, and we expect thecentral bank to conclude its easing cycle in 2012 as the recoverygets on a more sustainable path.

--- 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

Business Inventories (FEB)

0.6%

0.7%

USD

14:00

10:00

NAHB Housing Market Index (APR)

28.0

28.0

EUR

16:30

12:30

ECB's Ewald Nowotny Speaks on Euro Economy

USD

16:30

12:30

Fed's Sandra Pianalto Speaks on U.S. Banking, Economy

USD

19:30

15:30

Fed's James Bullard Speaks on U.S. Economy, Monetary Policy

Currency

GMT

Release

Expected

Actual

Comments

NZD

12:00

REINZ House Sales (YoY) (MAR)

--

25.3%

Slows for the first time since November.

NZD

12:00

REINZ Housing Price Index (MAR)

--

3343.5

Advances for the second straight month.

NZD

12:00

REINZ Housing Price Index (MoM) (MAR)

--

1.9%

NZD

22:30

Performance Services Index (MAR)

--

53.9

Slows for the first time since December.

NZD

22:45

Food Prices (MoM) (MAR)

--

-1.0%

Declines for the first time since October.

GBP

23:01

Rightmove House Prices (MoM) (APR)

--

2.9%

Fastest pace of growth since August 2010.

GBP

23:01

Rightmove House Prices (YoY) (APR)

--

3.4%

JPY

5:30

Tokyo Department Store Sales (YoY) (MAR)

--

26.7%

Highest since records began in 1990.

JPY

5:30

Nationwide Department Store Sales (YoY) (MAR)

--

14.1%

Highest since March 1997.

CHF

7:15

Producer & Import Prices (MoM) (MAR)

0.5%

0.3%

Slowest pace of growth since January.

CHF

7:15

Producer & Import Prices (YoY) (MAR)

-1.8%

-2.0%

EUR

8:00

Italian Trade Balance (Total) (euros) (FEB)

-1337M

-1113M

Smallest deficit since the surplus in December.

EUR

8:00

Italian Trade Balance EU (euros) (FEB)

--

439M

EUR

8:30

Italian Government Debt (FEB)

--

1928.2B

Narrows for the first time since December.

EUR

9:00

Euro-Zone Trade Balance s.a. (euros) (FEB)

5.0B

3.7B

Smallest deficit since October.

EUR

9:00

Euro-Zone Trade Balance (euros) (FEB)

3.0B

2.8B

CAD

12:30

International Securities Transactions (Canadian dollar) (FEB)

4.00B

12.49B

Highest since October.

USD

12:30

Empire Manufacturing (APR)

18.00

6.56

Lowest since November.

USD

12:30

Advance Retail Sales (MAR)

0.3%

0.8%

Advances for the tenth consecutive month.

USD

12:30

Advance Retail Sales Less Autos (MAR)

0.6%

0.8%

USD

12:30

Advance Retail Sales Less Autos & Gas (MAR)

0.5%

0.7%

USD

12:30

Advance Retail Sales "Control Group" (MAR)

0.5%

0.4%

USD

13:00

Total Net TIC Flows (FEB)

$30.0B

$107.7B

Highest since March 2011.

USD

13:00

Net Long-term TIC Flows (FEB)

$40.0B

$10.1B
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/2012/04/16/Bearish_Euro_Formation_Taking_Shape_Sterling_Threatens_Upward_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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