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, GreekElections Raises Risk For Breakup – 1.3000 Crucial

The Euro tumbled to a fresh monthly low of 1.2954 asFrench President Francois Hollande overtook Nicolas Sarkozy as the president ofFrance, while the two main parties in Greece failed to obtain ajoint majority, and the political uncertainties surrounding theregion casts a bearish outlook for the EURUSD as it struggles tohold above interim support (1.3000). As President Hollandechallenges the budget-cutting measures and looks toward fiscalstimulus to strengthen the economy, the shift in leadershipcertainly undermines the efforts to address the sovereign debtcrisis, and it seems as though Greece may ultimately leave themonetary 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, andthe sterling may track higher throughout the week as the Bank ofEngland moves away from its easing cycle. Indeed, the BoE is widelyexpected to maintain its current policy stance in May, but we maysee a growing rift within the Monetary Policy Committee as centralbank officials take note of the stickiness in underlying inflation.As the MPC drops its dovish tone for monetary policy, we should seethe committee start to discuss a tentative exit strategy going intothe second-half of the year, and Governor Mervyn King may sound abit more hawkish this time around as policy makers expect to see astronger recovery later this year. As the short-term correction inthe GBPUSD continues to pan out, we are still looking at the 1.6000figure (former resistance) for near-term support, and the pairlooks poised to mark fresh 2012 highs in the coming days as itmaintains the upward trend from earlier this year.

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

The greenback continued to retrace the decline fromApril , with the Dow Jones-FXCM U.S. Dollar Index(Ticker: USDOLLAR ) advancing to a high of 9,975, and the reservecurrency may appreciate further over the next 24-hours of tradingas market participants scale back their appetite for risk.Nevertheless, as consumer credit in the world’s largesteconomy is expected to increase another $9.800B in March, theongoing expansion may encourage an improved outlook for theworld’s largest economy, while FOMC voting member JeffreyLacker may continue to talk down speculation for additionalmonetary support as the region gets on a more sustainable path. AsFed officials take note of the more robust recovery, we should seethe committee continue to soften its dovish tone for monetarypolicy, and the shift in central bank rhetoric should continue toprop up the greenback as market participants scale back speculationfor QE3. As the USDOLLAR carves out a higher low coming into May,the greenback should continue to work its way back towards the10,000 figure, and we will maintain a bullish outlook for thereserve currency as we expect to see the Fed conclude its easingcycle 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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Related Articles: Weekly Currency Trading Forecast

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.
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/2012/05/07/EUR_Bearish_Pattern_Continues_To_Take_Shape_GBP_Correction_In_Focus.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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