Euro Continues To Carve Lower Top, Fresh Sterling Highs In Sight

By David Song, Currency Analyst

Talking Points
  • Euro: Spanish, French Yields Tip Higher – Rumors Of Credit Rating Downgrade Resurface
  • British Pound: Advances To Fresh 2012 High As BoE Warns Of Sticky Inflation
  • U.S. Dollar: Index To Consolidate, G20 Meeting In Focus

Euro: Spanish, FrenchYields Tip Higher – Rumors Of Credit Rating DowngradeResurface

The Euro advanced to an overnight high of 1.3165 as Spain sold EUR 2.54B in 2 and 10-Year bonds, which exceeded the EUR 2.5B target, but the rally was short-lived as the government offered 5.743% on the 2022 debt compared to the 5.403% in January. In contrast, France sold EUR 10.5B versus the EUR 11.0B target, while the yield tied to the five-year note climbed to 1.83% from 1.78% in March.

In light of the recent development, rumorsemerged that France could face a credit rating downgrade, whichpushed the euro down to 1.3069, and the heightening risk forcontagion reinforces our bearish view for the EURUSD as Europeanpolicy makers struggle to restore investor confidence. Despite theongoing turmoil in Spain, the European Union said there is‘no plan to activate the EFSF or the ESM to supportor recapitalize Spanish banks ,’ and we may see the European CentralBank take additional steps to shore up the ailing economy as thegovernments operating under the single currency become increasinglyreliant on monetary support. As the EURUSD marks another failed runat 1.3200, the pair certainly appears to be carving a lower topgoing into the last week of April, and we are still looking for amove below 1.3000 as price action continues to approach the apex ofthe descending triangle. Once the key figure gives out, we expectto see the euro-dollar fall back towards the 23.6% Fibonacciretracement from the 2009 high to the 2010 low around 1.2630-50,and the single currency is likely to face additional headwinds overthe near-term as the fundamental outlook for the region turnsincreasingly bleak.

British Pound: Advances To Fresh2012 High As BoE Warns Of Sticky Inflation

The British Pound climbed to a fresh yearly high of 1.6077 asBank of England board member Adam Posen struck a more hawkish tonefor monetary policy, and the sterling should track higherthroughout 2012 as the central bank moves away from its easingcycle. Indeed, Mr. Posen warned about the stickiness in the corerate of inflation, stating that BoE is taking resilience inunderlying price growth ‘very seriously,’ and it seemsas though the Monetary Policy Committee is setting the stage tostart normalizing monetary policy as central bank officials turnincreasingly upbeat towards the economy. As the GBPUSD maintainsthe upward trending channel from earlier this year, we should seethe pair continue to march towards the 23.6% Fib from the 2009 lowto high around 1.6250, and we expect to see the sterling outperformagainst its major counterparts in 2012 amid the shift in the policyoutlook.

U.S. Dollar: Index To Consolidate,G20 Meeting In Focus

The greenback continued to gain ground onThursday, with the Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDOLLAR ) climbing to a high of 9,974, but we may see thereserve currency consolidate during the North American trade as theU.S. equity market pares the decline from the open. At the sametime, we’re expecting to see a 0.5% rise in Existing HomeSales, and a rebound in trader sentiment may sap demands for thegreenback as market participants increase their appetite for risk.Nevertheless, as the Group of 20 meeting in Washington comes intofocus, global policy makers may show an increased willingness toshore up the global economy, but optimism surrounding the event mayquickly fizzle should group struggle to meet on commonground.

--- 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

EUR

14:00

10:00

Euro-Zone Consumer Confidence (APR A)

-19.1

USD

14:00

10:00

Philadelphia Fed. (APR)

12.1

12.5

USD

14:00

10:00

Existing Home Sales (MoM) (MAR)

0.7%

-0.9%

USD

14:00

10:00

Existing Home Sales (MAR)

4.62M

4.59M

USD

14:00

10:00

Leading Indicators (MAR)

0.2%

0.7%

EUR

15:30

11:30

ECB's Peter Praet Speaks on ECB's Role in Debt Crisis

Currency

GMT

Release

Expected

Actual

Comments

NZD

22:00

ANZ Job Ads (MoM) (MAR)

--

-1.0%

First decline since December.

NZD

22:45

Consumer Prices Index (QoQ) (1Q)

0.5%

0.5%

Slowest pace of growth since 3Q 2010.

NZD

22:45

Consumer Prices Index (YoY) (1Q)

1.6%

1.6%

JPY

23:50

Adjusted Merchandise Trade Balance (Yen) (MAR)

-446.3B

-621.3B

Largest deficit since April 2011 as imports rose the most since November.

JPY

23:50

Merchandise Trade Balance Total (Yen) (MAR)

-223.2B

-82.6B

JPY

23:50

Merchandise Trade Exports (YoY) (MAR)

0.2%

5.9%

JPY

23:50

Merchandise Trade Imports (YoY) (MAR)

7.0%

10.5%

AUD

1:30

NAB Business Confidence (1Q)

--

-1

Lowest since 3Q 2011.

AUD

1:30

RBA Foreign Exchange Transaction (Australian dollar) (MAR)

--

944M

Highest since June 2011.

EUR

8:00

Italian Industrial Orders s.a. (MoM) (FEB)

-1.1%

-2.5%

Weakens for the second month.

EUR

8:00

Italian Industrial Orders n.s.a. (YoY) (FEB)

-6.2%

-13.2%

EUR

8:00

Italian Industrial Sales s.a. (MoM) (FEB)

--

2.3%

Rises for the first time since December.

EUR

8:00

Italian Industrial Sales n.s.a. (YoY) (FEB)

--

-1.5%

USD

12:30

Initial Jobless Claims (APR 14)

370K

386K

Holding at the lowest levels since 2008.

USD

12:30

Continuing Claims (APR 7)

3300K

3297K
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/2012/04/19/Euro_Continues_To_Carve_Lower_Top_Fresh_Sterling_Highs_In_Sight.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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