EUR Bearish Pattern Continues To Take Shape, GBP Correction In Focus

By David Song, Currency Analyst

Talking Points
  • Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial
  • British Pound: Correction In Focus, BoE To Discuss Exit Strategy
  • U.S. Dollar: Fed’s Lacker To Talk Down QE3, Consumer Credit On Tap

Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial

The Euro tumbled to a fresh monthly low of 1.2954 as French President Francois Hollande overtook Nicolas Sarkozy as the president of France, while the two main parties in Greece failed to obtain a joint majority, and the political uncertainties surrounding the region casts a bearish outlook for the EURUSD as it struggles to hold above interim support (1.3000). As President Hollande challenges the budget-cutting measures and looks toward fiscal stimulus to strengthen the economy, the shift in leadership certainly undermines the efforts to address the sovereign debt crisis, and it seems as though Greece may ultimately leave the monetary union as government officials shun austerity.

As the fiscal situation in Europe turn increasingly bleak, we should see the European Central Bank take additional steps to shore up the ailing economy, and the Governing Council may face increased pressure to push the benchmark interest rate below 1.00% in order to dampen the risk for a prolonged recession. As the bearish formation in the EURUSD continues to take shape, we are waiting to see a close below 1.3000 to favor further declines in the exchange rate, and we will preserve our bearish outlook for the pair as price action continues to approach the apex of the descending triangle. In turn, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50, and the single currency is likely to face additional headwinds this year as European policy makers struggle to meet on common ground.

British Pound: Correction In Focus, BoE To Discuss Exit Strategy

The British Pound regained its footing on Monday, with the GBPUSD bouncing back from an overnight low of 1.6113, and the sterling may track higher throughout the week as the Bank of England moves away from its easing cycle. Indeed, the BoE is widely expected to maintain its current policy stance in May, but we may see a growing rift within the Monetary Policy Committee as central bank officials take note of the stickiness in underlying inflation. As the MPC drops its dovish tone for monetary policy, we should see the committee start to discuss a tentative exit strategy going into the second-half of the year, and Governor Mervyn King may sound a bit more hawkish this time around as policy makers expect to see a stronger recovery later this year. As the short-term correction in the GBPUSD continues to pan out, we are still looking at the 1.6000 figure (former resistance) for near-term support, and the pair looks poised to mark fresh 2012 highs in the coming days as it maintains the upward trend from earlier this year.

U.S. Dollar: Fed’s Lacker To Talk Down QE3, Consumer Credit On Tap

The greenback continued to retrace the decline from April , with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR ) advancing to a high of 9,975, and the reserve currency may appreciate further over the next 24-hours of trading as market participants scale back their appetite for risk. Nevertheless, as consumer credit in the world’s largest economy is expected to increase another $9.800B in March, the ongoing expansion may encourage an improved outlook for the world’s largest economy, while FOMC voting member Jeffrey Lacker may continue to talk down speculation for additional monetary support as the region gets on a more sustainable path. As Fed officials take note of the more robust recovery, we should see the committee continue to soften its dovish tone for monetary policy, and the shift in central bank rhetoric should continue to prop up the greenback as market participants scale back speculation for QE3. As the USDOLLAR carves out a higher low coming into May, the greenback should continue to work its way back towards the 10,000 figure, and we will maintain a bullish outlook for the reserve currency as we expect to see the Fed conclude its easing cycle in 2012.

--- 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

19:00

15:00

Consumer Credit (MAR)

$9.750B

$8.735B

GBP

23:01

19:01

BRC Shop Price Index (YoY) (APR)

1.6%

1.5%

GBP

23:01

19:01

RICS House Price Balance (APR)

-11%

-10%

USD

23:15

19:15

Fed's Jeffrey Lacker Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

AUD

23:30

AiG Performance of Construction Index (APR)

--

34.9

Lowest since October.

AUD

1:30

NAB Business Confidence (APR)

--

4

Highest since January.

AUD

1:30

NAB Business Conditions (APR)

--

0

AUD

1:30

Retail Sales s.a. (MoM) (MAR)

0.2%

0.9%

Biggest quarterly rise since 2Q 2009.

AUD

1:30

Retail Sales ex Inflation(QoQ) (1Q)

0.4%

1.8%

AUD

1:30

Building Approvals (MoM) (MAR)

3.0%

7.4%

Largest advance since November.

AUD

1:30

Building Approvals (YoY) (MAR)

-18.0%

-15.0%

AUD

1:30

ANZ Job Advertisements (MoM) (APR)

--

-3.1%

Falls for the first time since December.

CHF

5:45

Unemployment Rate s.a. (APR)

3.1%

3.1%

Highest since February.

CHF

5:45

Unemployment Rate (APR)

3.1%

3.1%

AUD

6:30

Foreign Reserves (Australian dollar) (APR)

--

$47.6B

Narrows for the first time since November.

CHF

7:00

Foreign Currency Reserves (APR)

--

235.6B

Two-month low.

CHF

7:15

Consumer Price Index (MoM) (APR)

0.2%

0.1%

Contracts for the seventh consecutive month.

CHF

7:15

Consumer Price Index (YoY) (APR)

-0.9%

-1.0%

CHF

7:15

CPI - EU Harmonised (MoM) (APR)

--

0.0%

CHF

7:15

CPI - EU Harmonised (YoY) (APR)

--

-1.1%

EUR

8:30

Euro-Zone Sentix Investor Confidence (MAY)

-15.3

-24.5

Lowest since July 2009.

EUR

10:00

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

0.5%

2.2%

Biggest rise since October.

EUR

10:00

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

-2.8%

-1.3%

CAD

12:30

Building Permits (MoM) (MAR)

-1.5%

4.7%

Advances for the second straight month.
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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/05/07/EUR_Bearish_Pattern_Continues_To_Take_Shape_GBP_Correction_In_Focus.html