DailyFX - DailyFX Daily Briefing - US

Euro Weighed by Growth Concerns- U.K. CPI to Prop Up Sterling

David Song, Currency Analyst — Mon, 17 Jun 2013 13:00:00 GMT

The EURUSD is struggling to hold its ground on Monday as European policy makers warn of a protracted recovery in the euro-area.

Talking Points

Euro: Trade Surplus Narrows, Bundesbank Sees Slower Growth
British Pound: U.K. Inflation to Accelerate Ahead of BoE Minutes
U.S. Dollar: Empire Manufacturing Tops Forecast, NAHB on Tap

Euro: Trade Surplus Narrows, Bundesbank Sees Slower Growth

The EURUSD fell back from an overnight high of 1.3356 as the euro-area’s trade surplus narrowed to 16.1B from a revised 18.1B in March, while the Bundesbank warned that ‘signs of a slowdown in growth are emerging’ amid the protracted recovery in the euro-area.

As the periphery countries struggle to get their house in order, the European Central Bank (ECB) may come under increased pressure to implement more non-standard measures over the coming months, and we may see a growing number of central bank officials support a negative interest rate policy (NIRP) as the region struggles to return to growth.

As the ongoing weakness in the real economy threatens price stability, we should see ECB President Mario Draghi sound more dovish in the second-half of the year, and we may see the single currency change course as the fundamental outlook for the region turns increasingly bleak.

Although the EURUSD appears to be trading within an ascending channel, the pair looks poised for a near-term correction as the relative strength index comes back from overbought territory, and we may see the euro-dollar struggle to maintain the bullish trend should the ECB continue to take unprecedented measures to shore up the governments operating under the monetary union.

British Pound: U.K. Inflation to Accelerate Ahead of BoE Minutes

The British Pound extended the advance from the previous week, with the GBPUSD climbing to a fresh monthly high of 1.5735, and the sterling may appreciate further over the next 24-hours of trading as the economic docket is expected to show heightening price pressures in Britain.

Indeed, the headline reading for U.K. inflation is expected to increase an annualized 2.6% in May after expanding 2.4% the month prior, while core consumer prices are projected to climb 2.1% from 2.0% during the same period.

As the Bank of England (BoE) sees above-target inflation over the policy horizon, we should see the central bank retain its wait-and-see approach in the coming months, and the BoE Minutes may show the Monetary Policy Committee slowly moving away from its easing cycle as the region skirts a triple-dip recession.

Although we’re seeing the relative strength index on the GBPUSD come up against overbought territory, the fundamental developments coming out of the U.K. may prop up the sterling ahead of the policy statement, and we may see the pound-dollar make a run at the 100% Fibonacci expansion from the March advance around 1.5780-90 should we see stronger price growth in Britain.

U.S. Dollar: Empire Manufacturing Tops Forecast, NAHB on Tap

The greenback pared the sharp decline from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 10,504, and the reserve currency may continue to gain ground during the North American trade as the fundamental developments coming out of the world’s largest economy instills an improved outlook for growth.

Indeed, the Empire Manufacturing survey advanced to 7.84 from -1.43 in April amid forecasts for a 0.00 print, while the NAHB Housing Market index is expected to increase to 45 in June, which would be the highest reading since February. In turn, we may see the USD track higher ahead of the FOMC interest rate decision on June 19, and the central bank may sound more upbeat this time around as the recovery gradually gathers pace.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	NAHB Housing Market Index (JUN)	45	44
EUR	15:10	11:10	ECB's Jens Weidmann Speaks on Euro Economy
EUR	16:30	12:30	ECB's Yves Mersch Speaks on Euro Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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JPY Correction Continues- EUR Persistently Carves Near-Term Top

David Song, Currency Analyst — Tue, 11 Jun 2013 13:00:00 GMT

The Japanese Yen snapped back against its major counterparts on Tuesday, while the Euro continues to carve a near-term top in June.

Talking Points

Japanese Yen: BoJ Retains Current Policy, Broad Range Ahead
Euro: ECB’s OMT Gains Support, More Non-Standard Measures Ahead
British Pound: U.K. Manufacturing Disappoints- RSI Turns Over

Japanese Yen: BoJ Retains Current Policy, Broad Range Ahead

The Japanese Yen rallied on the Bank of Japan (BoJ) interest rate decision, with the USDJPY tumbling to a low of 96.45, and the low-yielding currency may appreciate further over the near-term as the central bank adopts a neutral stance for monetary policy.

Indeed, the BoJ refrained from expanding its non-standard measures while retaining the current terms of funding for its bank-lending program, and we may see the central bank retain its current policy in the coming months as economic activity picks up.

Although Governor Haruhiko Kuroda pledged to further embark on the easing cycle, the pause in the central bank’s easing cycle may produce whipsaw-like price action across the Japanese Yen exchange rates, we may see the low-yielding currency trade within a broad range ahead of the next BoJ meeting on July 11 as market participants weigh the outlook for monetary policy.

Nevertheless, the low-yielding currency remains poised to depreciate further in the second-half of the year as the BoJ struggles to encourage positive price growth, and we may see the central bank take a more aggressive approach in achieving the 2% target for inflation in order to get the economy on a more sustainable path.

Euro: ECB’s OMT Gains Support, More Non-Standard Measures Ahead

The EURUSD extended the advance from earlier this week as European officials stood behind the Outright Monetary Transaction (OMT) program at the German court hearing, but the relief rally in the single currency may taper off in the coming days as the region remains mired in recession.

Indeed, German Finance Minister Wolfgang Schaeuble argued that the European Central Bank’s (ECB) non-standard measures are fully within its mandate and warned that the central bank’s independence needs to be respected as the Governing Council looks to steer the economy out of recession.

However, as the region struggles to return to growth, the ECB may come under increased pressure to implement more non-standard measures in the coming months, and the central bank remains poised to further embark on its easing cycle in the second-half of the year as President Mario Draghi pledges to do whatever it takes to save the monetary union.

As the EURUSD continues to carve a near-term top just below the 1.3300 figure, with the relative strength index approaching overbought territory, the advance from earlier this month looks poised to taper off in the coming days, but we may see the pair carve out a bullish trend over the near-term should we see the euro-dollar carve a low above the May low (1.2795).

British Pound: U.K. Manufacturing Disappoints- RSI Turns Over

The British Pound struggled to hold its ground on Tuesday amid the mixed batch of data coming out of the U.K., and the GBPUSD may continue to consolidate ahead of the Bank of England (BoE) Minutes due out on June 19 as market participants weigh the prospects for future policy.

Although industrial outputs climbed 0.1% in April, manufacturing contract 0.2 during the same period following the 1.1% expansion last month, and the persistent slack in the real economy may keep the BoE on the sidelines as it aims to encourage a sustainable recovery.

Indeed, the British Pound looks due for a near-term correction as the RSI on the GBPUSD turns over ahead of overbought territory, and the pair may consolidate further in the days ahead as it continues to come off of the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680.FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
GBP	14:00	10:00	NIESR Gross Domestic Product Estimate (MAY)		0.8%
USD	14:00	10:00	Wholesale Sales (MoM) (APR)	-0.3%	-1.6%
USD	14:00	10:00	Wholesale Inventories (APR)	0.2%	0.4%
EUR	16:30	12:30	ECB's Peter Praet Speaks on Euro Economy
NZD	22:45	18:45	Card Spending (MoM) (MAY)		1.1%
NZD	22:45	18:45	Card Spending - Retail (MoM) (MAY)	0.5%	0.6%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Traders Eye OMT Hearing- S&P Upgrades U.S. Outlook

David Song, Currency Analyst — Mon, 10 Jun 2013 13:02:00 GMT

The EURUSD pared the decline following the highly anticipated Non-Farm Payrolls report as European policy makers talked down the risk surrounding the region.

Talking Points

Euro: ECB Sees ‘Modest’ Recovery, OMT Hearing in Focus
British Pound: Capped by 38.2% Fib, Larger Correction in Sight
U.S. Dollar: S&P Upgrades Outlook, Fed’s Bullard on Tap

Euro: ECB Sees ‘Modest’ Recovery, OMT Hearing in Focus

The Euro advanced to an overnight high of 1.3229 as European Central Bank (ECB) officials continue to see a ‘modest’ recovery later this year, but we may see the Governing Council further embark on its easing cycle in the coming months should the region struggle to emerge from the recession.

As Germany's Federal Constitutional Court prepares for a two-day hearing on the Outright Monetary Transactions, ECB board member Joerg Asmussen warned that repealing the non-standard measure ‘would have serious consequences’ for the union, and we may see the central bank face increased scrutiny over the near to medium-term as the governments operating under the single currency become increasingly reliant on monetary support.

In turn, Governing Council Benoit Coeure said the central bank will ‘consider all options’ to further assist the ailing economy as the fundamental outlook for the region remains clouded with high uncertainty, and pledged to support the region ‘as long as needed’ as the economic downturn continue to threaten price stability.

As the periphery countries face a deepening recession, we should see the ECB retain a dovish tone for monetary policy in the second-half of the year, and a growing number of central bank officials may show a greater willingness to implement a negative interest rate policy (NIRP) in order to address the risks surrounding the region.

Although the head-and-shoulders pattern in the EURUSD no longer looks valid, the ongoing turmoil in Europe should produce further declines in the exchange rate, and pair may have put in a near-term top around the 1.3300 handle as the relative strength index approaches overbought territory. Nevertheless, as the German court hearing comes into focus, negative headlines surrounding the OMT program may rattle the single currency, and we may see the euro-dollar struggle to preserve the rebound carried over from the previous month should the fundamental outlook for the region turn increasingly bleak.

British Pound: Capped by 38.2% Fib, Larger Correction in Sight

The British Pound regained its footing on Monday, with the GBPUSD climbing to a high of 1.5561, and the sterling may continue to retrace the decline from earlier this year as the Bank of England (BoE) appears to be moving away from its easing cycle.

Althoughthe economic docket is expected to show Industrial Production holding flat in April, another 5.0K drop in U.K. Jobless Claims may increase the appeal of the sterling, and we may see a growing number of BoE officials strike an improved outlook for the region as the region skirts a triple-dip recession. In turn, we may see the British Pound outperform on a longer-term scale, but the technical outlook highlights the risk of seeing a more meaningful correction in the GBPUSD as the pair comes off of the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680.

As the relative strength index on the GBPUSD turns over ahead of overbought territory, we may see a larger pullback ahead of the U.K. data on tap for later this week, but we will look for more British Pound strength over the near to medium-term as the BoE looks poised to keep its asset purchase program capped at GBP 375B.

U.S. Dollar: S&P Upgrades Outlook, Fed’s Bullard on Tap

The greenback is struggling to hold its ground, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 10,687, but the reserve currency may track higher during the North American trade as Standard & Poor’s updates its outlook for the U.S. to ‘stable’ from ‘negative.’

Nevertheless, as St. Louis Fed President James Bullard is scheduled to speak later today, the central bank official may highlight a greater willingness to scale back on quantitative easing, and the FOMC looks poised to switch gears in the second-half of the year as the world’s largest economy gets on a more sustainable path. In turn, we should see the bullish sentiment surrounding the greenback continue to take shape in the second-half of the year, and will continue to buy dips in the reserve currency as the fundamental outlook improves.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	13:50	9:50	Fed's James Bullard to Speaks on Global Economy
USD	18:00	14:00	Dallas Fed Holds Conference on Global Economy
CHF	19:00	15:00	SNB's Jean-Pierre Danthine Speaks on Swiss Economy
GBP	23:01	19:01	RICS House Price Balance (MAY)	3%	1%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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EURUSD Holds Steady Ahead of NFPs as ECB Delays Easing Cycle

David Song, Currency Analyst — Fri, 07 Jun 2013 12:10:00 GMT

The EURUSD is holding a narrow range ahead of the highly anticipated Non-Farm Payrolls report as forex traders weigh the outlook the fundamental outlook for the U.S.

Talking Points

• Euro: ECB Adopts Neutral Tone, Banks to Repay EUR 2.93B of LTRO

• British Pound: Carves Higher Low Ahead of BoE Minutes

• U.S. Dollar: All Eyes on NFPs, Jobless Rate

Euro: ECB Adopts Neutral Tone, Banks to Repay EUR 2.93B of LTRO

Although the EURUSD bounced back from an overnight low of 1.3223, the pair has yet to make another run at the 1.3300 handle, and the single currency may struggle to retain the advance from earlier this week should the U.S. Non-Farm Payrolls report dampen speculation for more Fed support.

As the EURUSD clears the May high (1.3241), the recent price development certainly dampens the scope of seeing the head-and-shoulders formation play out, and we may see the pair continue to retrace the decline from earlier this year as the European Central Bank (ECB) adopts a more neutral tone for monetary policy.

Nevertheless, as commercial banks in Europe look to repay another EUR 2.93B of the Long-Term Refinancing Operations (LTRO), the weakening outlook for private sector lending may prompt the ECB to further embark on its easing cycle in the second-half of the year, and the central bank may implement a range of policy tools in the coming months as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

Although we’re scaling back our bearish outlook for the EURUSD, the pair looks poised for a correction as the relative strength index approaches overbought territory, and the single currency remains poised to face additional headwinds over the near to medium-term as the euro-area struggles to emerge from the recession.

British Pound: U.K. Service-Based Activity Gathers Pace

The British Pound pared the advance from earlier this week, with the GBPUSD falling back from the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680, and the sterling may continue to consolidate ahead of the Bank of England (BoE) Minutes due out on June 19 as market participants weigh the outlook for monetary policy.

Indeed, we anticipate another 6-3 split within the Monetary Policy Committee as the BoE refrained from releasing a policy statement yet again, and there may be a growing discussion to move away from the easing cycle as the U.K. averts a triple-dip recession.

Although there’s speculation that the next BoE Governor, Mark Carney, will introduce a growth target for the MPC, a report by the central bank showed inflation expectations for the next 12-months held steady at an annualized 3.6% in May, and the committee may continue to operate under its inflation-targeting framework as price growth is expected to hold above the 2% target over the policy horizon.

As the GBPUSD carves out a higher high in June, and upward trending channel appears to be taking shape, and we will look for a higher low in the exchange rate as the BoE drops its dovish tone for monetary policy.

U.S. Dollar: ADP Disappoints- ISM, Fed’s Beige Book on Tap

The greenback continued to lose ground on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) falling back from an overnight high of 10,614, but the reserve currency may regain its footing during the North American trade as U.S. Non-Farm Payrolls are projected to increase another 165K in May.

Although the jobless rate is expected to hold steady at an annualized 7.5%, we may see a rise in the unemployment print should discouraged workers return to the labor force, and the dollar may face a choppy reaction should we see a mixed batch of data. Nevertheless, currency traders may turn increasingly bullish on the USD ahead of the next FOMC meeting on June 19 as we see a growing discussion to taper the asset-purchase program, and the updated assessment from the central bank may further dampen expectations for additional monetary support should the Fed raise its outlook for growth and inflation.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
CAD	12:30	8:30	Net Change in Employment (MAY)	20.0K	12.5K
CAD	12:30	8:30	Unemployment Rate (MAY)	7.1%	7.2%
CAD	12:30	8:30	Full Time Employment Change (MAY)		36
CAD	12:30	8:30	Part Time Employment Change (MAY)		-23.6
CAD	12:30	8:30	Participation Rate (MAY)	66.5	66.5
CAD	12:30	8:30	Labor Productivity (QoQ) (1Q)		0.1%
USD	12:30	8:30	Change in Non-Farm Payrolls (MAY)	165K	165K
USD	12:30	8:30	Unemployment Rate (MAY)	7.5%	7.5%
USD	12:30	8:30	Change in Private Payrolls (MAY)	175K	176K
USD	12:30	8:30	Change in Manufacturing Payrolls (MAY)	3K	0K
USD	12:30	8:30	Average Hourly Earning (MoM) (MAY)	0.2%	0.2%
USD	12:30	8:30	Average Hourly Earning (YoY) (MAY)	2.1%	1.9%
USD	12:30	8:30	Average Weekly Hours (MAY)	34.5	34.4
USD	12:30	8:30	Two-Month Payroll Net Revision (MAY)
USD	12:30	8:30	Change in Household Employment (MAY)		293
USD	12:30	8:30	Underemployment Rate (U6) (MAY)		13.9%
USD	19:00	15:00	Consumer Credit (APR)	$14.000B	$7.966B

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Pound Looks Higher as BoE Retains Current Policy- ECB in Focus

David Song, Currency Analyst — Thu, 06 Jun 2013 11:25:00 GMT

The British Pound extended the advance from earlier this week as the Bank of England (BoE) appears to be slowly moving away from its easing cycle.

Talking Points

British Pound: BoE Preserves Current Policy, 38.2% Fib in Sight
Euro: ECB to Keep Benchmark Interest Rate at Record-Low

British Pound: BoE Preserves Current Policy, 38.2% Fib in Sight

The British Pound climbed to a fresh monthly high of 1.5463 as the Bank of England (BoE) kept the benchmark interest rate at 0.50% while maintaining its asset purchase program at GBP 375B, and the sterling may continue to pare the decline from earlier this year as the central bank carries its wait-and-see approach into the second-half of 2013.

Although the BoE refrained from releasing a policy statement, the BoE Minutes due out on June 19 should show another 6-3 split within the Monetary Policy Committee, but we may see a growing discussion to conclude the easing cycle as the U.K. averts a triple-dip recession.

Nevertheless, there’s speculation that BoE will adopt a growth target in the coming months as Mr. Mark Carney is scheduled to take the help in July, but the MPC continue to operate under its inflation-targeting framework as the region is expected to face above-target price growth over the policy horizon. In turn, the majority of the MPC may start to discuss a tentative exit strategy in the coming months, and the committee may adopt a more hawkish tone for monetary policy as the central bank sees a sustainable recovery in Britain.

As the GBPUSD carves out a higher low coming into June, we should see the rebound from 1.5007 gather pace in the days ahead, and the pair looks poised to make another run at the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680 as market participants scale back bets for more quantitative easing.

Euro: ECB to Keep Benchmark Interest Rate at Record-Low

The Euro edged higher ahead of the European Central Bank (ECB) interest rate decision, with the EURUSD tagging an overnight high of 1.3129, but we may see the single currency continue to carve out a lower top in June as the Governing Council is widely expected to further embark on its easing cycle in the second-half of the year.

Although the ECB is widely expected to keep the benchmark interest rate at 0.50%, President Mario Draghi may sound more dovish this time around, and the central bank head may increase his pledge to shore up the ailing economy as the region struggles to emerge from the recession.

Indeed, we may see a greater discussion to implement a negative interest-rate policy (NIRP) as the economic downturn threatens price stability, while Mr. Draghi may show a greater willingness to purchase Asset-Backed Securities (ABS) as commercial banks scale back on lending.

At the same time, we may see a growing rift within the Governing Council as the governments operating under the single currency become increasingly reliant on monetary support, but the central bank may have little choice but to implement additional measures in the coming months as the governments operating under the single currency become increasingly reliant on monetary support.

Should the ECB strike a highly dovish tone for monetary policy, expectations for more easing should trigger a selloff in the EURUSD, and the rate decision may serve as the fundamental catalyst to put the head-and-shoulders formation into play as currency traders weigh the outlook for monetary policy.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
EUR	11:45	7:45	European Central Bank Interest Rate Decision	0.50%	0.50%
EUR	11:45	7:45	European Central Bank Deposit Facility Rate	0.00%	0.00%
USD	12:00	8:00	Fed's Charles Plosser Speaks on Economy in Boston
EUR	12:30	8:30	ECB President Mario Draghi Delivers Policy Statement
USD	12:30	8:30	Initial Jobless Claims (JUN 1)	345K	354K
USD	12:30	8:30	Continuing Claims (MAY 25)	2975K	2986K
CAD	14:00	10:00	Ivey Purchasing Managers Index s.a. (MAY)	57.0	52.2
USD	16:00	12:00	Household Change in Net Worth (1Q)		$1174B

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Remains Capped Ahead of ECB- H&S Formation to Take Shape

David Song, Currency Analyst — Wed, 05 Jun 2013 13:00:00 GMT

The EURUSD continues to carve a lower top ahead of the European Central Bank (ECB) meeting amid the negative developments coming out of the euro-area.

Talking Points

Euro: 1Q GDP Contracts 0.2%, Retail Sales Slumps
British Pound: U.K. Service-Based Activity Gathers Pace
U.S. Dollar: ADP Disappoints- ISM, Fed’s Beige Book on Tap

Euro: 1Q GDP Contracts 0.2%, Retail Sales Slumps

The Euro tagged a low of 1.3051 ahead of the European Central Bank (ECB) policy meeting as the preliminary GDP report showed the growth rate contracting another 0.2% in the first-quarter, while retail spending slipped another 0.5% in April to mark the longest stretch of declines the last three-months since 2002.

As the region faces a prolonged recession, the ECB remains poised to lower its outlook for growth and inflation, and we may see a greater discuss to implement a negative interest rate policy (NIRP) across the euro-area as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support. Indeed, Portugal is seeking ‘eligibility for the OMT program’ as it looks to avoid another bailout, and we may see the ECB come under increased pressure to implement more non-standard measures as the periphery countries struggle to get their house in order.

Despite the mixed views surrounding Asset-Backed Security (ABS) purchases, ECB President Mario Draghi may look to expand the balance sheet further in an effort to encourage private sector lending, and the euro remains poised to face additional headwinds in the second-half of the year as the European policy makers retain a reactionary approach in addressing the risks surrounding the region.

As the EURUSD continues to carve a lower top below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, a dovish ECB may serve as the fundamental catalyst to put the head-and-shoulders formation into motion, and we will continue to look for a move back towards the 23.6% retracement around 1.2640-50 as the dismal developments coming out of the euro-area dampen the appeal of the single currency.

British Pound: U.K. Service-Based Activity Gathers Pace

The British Pound extended the advance from earlier this week as serviced-based activity in the U.K. expanded at a faster pace in May, with the Purchasing Manager index advancing to 54.9 from 52.9 the month prior, and the sterling looks poised to track higher over the next 24-hours of trading as the Bank of England (BoE) is widely expected to maintain its current policy in June.

As the BoE anticipates a sustainable recovery in the U.K., we may see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the Monetary Policy Committee may slowly move away from its easing cycle in the coming months as the region is expected to face above-target inflation over the policy horizon. Nevertheless, the BoE may refrain from releasing a policy statement once again as the central bank continues to stick to the sidelines, but another 6-3 should spark a bullish reaction in the British Pound as market participants scale back bets for more quantitative easing.

In turn, we may see the GBPUSD make another run at the 38.2% Fib from the 2009 low to high around 1.5680, and the sterling may outperform in the second-half of the year amid the shift in the policy outlook.

U.S. Dollar: ADP Disappoints- ISM, Fed’s Beige Book on Tap

The greenback is struggling to hold its ground ahead of the Fed’s Beige Book, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 10,729, but the weakness may be short-lived as the economic docket is expected to show an improved outlook for the world’s largest economy.

Indeed, the dollar took a hit as the ADP Employment report showed private payrolls increasing 135K in May amid forecasts for a 165K print, and the survey certainly does not bode well for Friday’s Non-Farm Payroll report, which is expected to show a 167K rise in employment.

Nevertheless, the ISM report is expected to show service-based activity expanding at a faster pace in May as the index is projected to increase to 53.5 from 53.1 the month prior, while the Fed survey may further dampen the FOMC’s scope to expand the balance sheet further as the district banks take note of a more broad-based recovery in the world’s largest economy.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	ISM Non-Manufacutring Composite (MAY)	53.5	53.1
USD	14:00	10:00	Factory Orders (APR)	1.5%	-4.0%
USD	14:30	10:30	DOE U.S. Crude Oil Inventories (MAY 31)		3000K
USD	14:30	10:30	DOE U.S. Distillate Inventory (MAY 31)		1851K
USD	14:30	10:30	DOE U.S. Gasoline Inventories (MAY 31)		-1514K
USD	18:00	14:00	Fed Releases Beige Book

--- 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, please follow this link.

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Euro Capped Ahead of ECB- Bearish Formation Remains in Focus

David Song, Currency Analyst — Tue, 04 Jun 2013 13:00:00 GMT

The rebound in the EURUSD appears to be tapering off ahead of the European Central Bank (ECB) meeting as European policy makers struggle to restore investor confidence.

Talking Points

Euro: Producer Prices Disappoint, ESM in ‘Final Talks’
British Pound: BoE Governor King Sees ‘Gentle Recovery’
U.S. Dollar: Fed’s Esther George in Focus Amid Light Calendar

Euro: Producer Prices Disappoint, ESM in ‘Final Talks’

The Euro advanced to 1.3096 even as Producer Prices in the monetary union contracted an annualized 0.2% in April to mark the first decline since February 2010, but the short-term rebound in the single currency appears to be tapering off ahead of the European Central Bank (ECB) interest rate decision amid the weakening outlook for the region.

Indeed, Klaus Regling, who heads the European Stability Mechanism, said the organization is in ‘final talks’ to directly aid commercial banks across the monetary union, but we may see the EU maintain a reactionary approach in addressing the risks surrounding the region as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

Although the ECB is widely expected to carry its easing cycle into the second-half of the year, there’s reports that the central bank will refrain from purchasing Asset-Backed Securities (ABS) as it will have a limited impact in encouraging private sector lending, and we may see the Governing Council continue to target the benchmark interest rate as the ailing economy struggles to return to growth.

As the prolonged recession threatens the outlook for price stability, we may see a greater discussion to implement a negative-interest rate policy (NIRP) at the June 6 meeting, and we may see a growing number of ECB officials push for additional monetary support in the second-half of the year as the periphery countries struggle to get their house in order.

As the EURUSD continues to carve a lower top below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, we should see the head-and-shoulders formation continue to take shape, and we may see the pair another run at the 23.6% retracement (1.2640-50) in the coming days should ECB President Mario Draghi show a greater willingness to push the benchmark interest rate to a fresh-record low in the coming months.

British Pound: BoE Governor King Sees ‘Gentle Recovery’

The British Pound pared the advance from earlier this week, with the GBPUSD tagging an overnight low of 1.5281, but the sterling remains poised to regain its footing ahead of the Bank of England (BoE) interest rate decision as the central bank drops its dovish tone for monetary policy.

Indeed, BoE Governor Mervyn King struck an improved outlook for the U.K. as he sees a ‘gentlerecovery’ underway, and went onto say that the Monetary Policy Committee ‘has already done a great deal to stimulate economic activity’ as the central bank extends the Funding for Lending Scheme by another 12-months.

As the BoE appears to be slowly moving away from its easing cycle, we should see the GBPUSD continue to retrace the decline from earlier this year, and the pair looks poised to carve out a higher high as it builds a short-term base above the 1.5000 handle.

U.S. Dollar: Fed’s Esther George in Focus amid Light Calendar

The greenback bounced back on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 10,720, and we may see the reserve currency appreciate further during the North American trade should Kansas City Fed President Esther George, the lone dissenter on the FOMC, lay out a more detailed exit strategy.

Although the economic docket remains fairly light for the remainder of the day, the fresh batch of central bank rhetoric may increase the appeal of the USD as we see a growing number of Fed officials adopt an improved outlook for the world’s largest economy, and the bullish sentiment surrounding the greenback should gather pace in the second-half of the year as the FOMC looks scale back on quantitative easing.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	IBD/TIPP Economic Optimism (JUN)	50.0	45.1
EUR	17:00	13:00	German Fin Min Schaeuble Discusses CDU Election Platform
USD	17:30	13:30	Fed's Esther George Speaks on U.S. Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro to Falter as ECB Pursues Easing Cycle- Cable Looks Higher

David Song, Currency Analyst — Mon, 03 Jun 2013 13:00:00 GMT

The EURUSD is struggling to hold its ground ahead of the European Central Bank (ECB) interest rate decision amid growing bets for additional monetary support.

Talking Points

Euro: ECB’s Draghi Says Economic Situation Remains Challenging
British Pound: BoE Sees Recovery in U.K., Private Lending to Pickup
U.S. Dollar: Fed’s William Sees FOMC Tapering QE

Euro: ECB’s Draghi Says Economic Situation Remains Challenging

The Euro is giving back the overnight advance to 1.3042 even as the economic docket showed manufacturing in Europe contracting at a slower pace during the month of May, and the single currency may continue to track lower ahead of the European Central Bank (ECB) meeting as the Governing Council remains poised to carry its easing cycle into the second-half of the year.

Prior to the interest rate decision, ECB President Mario Draghi reiterated that the economic situation in the euro-area remains challenging as the region remain mired in recession, and warned that monetary policy cannot substitute for structural reforms as the EU scales back its push for austerity.

Although the ECB is widely expected to keep the benchmark interest rate at 0.50%, the central bank may show a greater willingness to implement additional rate cuts in order to shore up the ailing economy, while the Governing Council may come under increased pressure to introduce more non-standard measures as the governments operating under the single currency become increasingly reliant on monetary support.

Indeed, we may see a greater discussion to purchase Asset-Back Securities (ABS) as the Governing Council looks to encourage private-sector lending across the monetary union, but President Draghi may face increased scrutiny as the central bank pushes into uncharted territory.

As the EURUSD struggles to push back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, we may see the pair continue to carve a lower top in June, and the ECB rate decision may serve as the fundamental catalyst to put the head-and-shoulders pattern into play as market participants weigh the outlook for monetary policy.

British Pound: BoE Sees Recovery in U.K., Private Lending to Pickup

The British Pound extended the rebound from the previous week, with the GBPUSD climbing to a high of 1.5287, and the sterling may continue to gain ground ahead of the Bank of England (BoE) interest rate decision as the central bank appears to be slowly moving away from its easing cycle.

Indeed, BoE Governor Mervyn King continued to note a recovery in the U.K., with Markets Director Paul Fisher anticipating a pickup in net lending throughout the course of the year, and we may see a growing number of Monetary Policy Committee officials adopt a hawkish tone for monetary policy as inflation is seen holding above the 2% target over the policy horizon.

In turn, we may see another 6-3 split within the MPC, but the central bank may refrain from releasing a policy statement once again as it remains on the sidelines. Nevertheless, as the interest rate outlook improves, the recent advance in the GBPUSD may produce another run at the 38.2% retracement from the 2009 low to high around 1.5680, and we may see the sterling outperform in the second-half of the year as market participants scale back bets for additional monetary support.

U.S. Dollar: Fed’s William Sees FOMC Tapering QE

The greenback continued to lose ground during the first trading day of June, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 10,725, and the reserve currency may weaken further during the North American trade as the ISM Manufacturing survey is expected to dampen the outlook for growth.

However, comments from San Francisco Fed President John Williams may increase the appeal of the USD as he sees the FOMC tapering its asset purchase program as ‘early as this summer,’ and we should see the bullish sentiment surrounding the greenback gather pace in the second-half of the year as a growing number of central bank officials scale back their willingness to expand the balance sheet further.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	Construction Spending (MoM) (APR)	1.0%	-1.7%
USD	14:00	10:00	ISM Manufacturing (MAY)	50.5	50.7
USD	14:00	10:00	ISM Prices Paid (MAY)	49.5	50.0
USD	14:00	10:00	Revisions: Construction data back to Jan. 2011
EUR	16:00	12:00	Italian New Car Registrations (YoY) (MAY)		-10.83%
USD	21:00	17:00	Total Vehicle Sales (MAY)	15.10M	14.88M
USD	21:00	17:00	Domestic Vehicle Sales (MAY)	12.00M	11.76M
GBP	23:01	19:01	BRC Sales Like-For-Like (YoY) (MAY)	1.3%	-2.2%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Hit by Record-High Unemployment- Dovish ECB on Tap

David Song, Currency Analyst — Fri, 31 May 2013 12:20:00 GMT

The EURUSD is struggling to maintain the rebound from earlier this week amid the deepening recession in the euro-area.

Talking Points

Euro: Unemployment Hits Fresh Record-High Ahead of ECB
British Pound: U.K. Consumer Credit Continues to Expand Ahead of BoE

Euro: Unemployment Hits Fresh Record-High Ahead of ECB

The Euro tumbled to an overnight low of 1.2967 as unemployment in the monetary union climbed to a fresh record-high of 12.2% in April, and the single currency may continue to lose ground ahead of the next European Central Bank (ECB) interest rate decision on June 6 as the fundamental developments coming out of the region heightens speculation for additional monetary stimulus.

Indeed, ECB board member Ignazio Visco said the Governing Council ‘stands ready’ to further support the ailing economy as the region remains mired in recession, and the board may continue to push into unchartered territory as the governments operating under the single currency become increasingly reliant on central bank support.

As commercial banks in Europe look to repay another EUR 3.08B of the Long-Term Refinancing Operation, the weakening outlook for private sector credit may prompt an even greater discussion to purchase Asset-Back Securities (ABS) at the central bank, but we may see a growing number of ECB officials also call for a negative-interest rate policy (NIRP) as the prolonged recession threatens price stability.

As a result, we may see a growing rift within the ECB, but the central bank remains poised to further embark on its easing cycle in the second-half of the year as the region struggles to return to growth. In turn, we will maintain a bearish outlook for the EURUSD as it continues to carve a lower top below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, and the ECB rate decision could be the fundamental catalyst to put the head-and-shoulders pattern into play as market participants weigh the outlook for monetary policy.

British Pound: U.K. Consumer Credit Continues to Expand Ahead of BoE

The British Pound pared the decline to 1.5182 as the economic docket dampened bet for more quantitative easing out of the Bank of England (BoE), and the sterling may continue to retrace the decline from earlier this year as the central bank appears to be slowly moving away from its easing cycle.

Although U.K. Mortgage Approvals increased 53.7K in April amid forecasts for a 54.6K print, Consumer Credit expanded another 0.5B during the same period, and we may see private sector lending pick up further throughout the course of the year as the Funding for Lending Scheme continues to work its way through the real economy.

Indeed, the Monetary Policy Committee is widely expected to retain its current policy in June as the U.K. skirts a triple-dip recession, and we may see a growing number of BoE officials adopt a more neutral to hawkish tone for monetary policy as inflation is expected to hold above the 2% target over the policy horizon.

As the GBPUSD carves a higher low above the 1.5000 figure, the near-term rebound should gather pace going into June, and we may see the sterling make another run at the 38.2% Fib from the 2009 low to high around 1.5680 as the BoE appears to be concluding its easing cycle.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
CAD	12:30	8:30	Quarterly Gross Domestic Product Annualized (1Q)	2.1%	0.6%
CAD	12:30	8:30	Gross Domestic Product (MoM) (MAR)	0.1%	0.3%
CAD	12:30	8:30	Gross Domestic Product (YoY) (MAR)	1.5%	1.7%
USD	12:30	8:30	Personal Income (APR)	0.1%	0.2%
USD	12:30	8:30	Personal Spending (APR)	0.1%	0.2%
USD	12:30	8:30	Personal Consumption Expenditure Deflator (MoM)	-0.2%	-0.1%
USD	12:30	8:30	Personal Consumption Expenditure Deflator (YoY) (APR)	0.8%	1.0%
USD	12:30	8:30	Personal Consumption Expenditure Core (MoM) (APR)	0.1%	0.0%
USD	12:30	8:30	Personal Consumption Expenditure Core (YoY) (APR)	1.0%	1.1%
USD	12:45	8:45	Fed's Sandra Pianalto Speaks on Financial Stability
USD	13:00	9:00	NAPM-Milwaukee (MAY)		48.43
USD	13:45	9:45	Chicago Purchasing Manager (MAY)	50.0	49.0
USD	13:55	9:55	U. of Michigan Confidence (MAY F)	83.7	83.7
CNY	1:00	21:00	Purchasing Manager Index Manufacturing (MAY)	49.9	50.6
USD	10:00	6:00	Fed's Kocherlakota Speaks on Labor Markets

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Remains Capped by 1.30 as OECD Calls for ECB Support

David Song, Currency Analyst — Wed, 29 May 2013 13:00:00 GMT

The sharp rebound in the EURUSD appears to be tapering off ahead of the U.S. trade as the pair retains the range-bound price action carried over from the previous week.

Talking Points

Euro: OECD Sees 0.6% Contraction- Calls for Further ECB Support
British Pound: Continues to Carve Higher Low Around 1.5000
U.S. Dollar: Tumbles Lower Ahead of Boston Fed President Rosengren

Euro: OECD Sees 0.6% Contraction- Calls for Further ECB Support

The Euro snapped back on Wednesday despite the dismal developments coming out of the monetary union, but the EURUSD may continue to range-bound prices ahead of the European Central Bank (ECB) interest rate decision on tap for next week as market participants weigh the outlook for monetary policy.

Indeed, unemployment in Germany increased 21K in May amid forecasts for a 5K print, while the ECB said private sector lending contracted for the 12th consecutive month in April as the region remains mired in recession. As the Organization for Economic Cooperation and Development(OECD) now sees the euro-area contracting 0.6% in 2013, the group encouraged the central bankto‘supplement its recent cut in the refinancing rate by reducing the deposit rate to below zero’ and said that ‘more can be done through further non-conventional measures’ as the governments operating under the monetary union struggle to get their house in order.

Although a growing number of Governing Council officials see scope to purchase Asset-Backed Securities (ABS), we may see a growing rift within the ECB as European policy makers become increasingly reliant on monetary support, and central bank President Mario Draghi may face greater difficulty in steering the region out of recession as the EU scales back its push for austerity.

As the EURUSD continues to carve a lower top below the 1.3000 figure, the weakening outlook for the region should keep the head-and-shoulders formation intact and the bearish sentiment surrounding the single currency may gather pace in June should the ECB show a greater willingness to further embark on its easing cycle in the second-half of the year.

In turn, we are still waiting to see a move back towards the 23.65 Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and the bearish formation may continue to take shape in the month ahead as the fundamental outlook for the region turns increasingly bleak.

British Pound: Continues to Carve Higher Low Around 1.5000

The British Pound bounces back from a fresh monthly low of 1.5007 and the sterling may continue to press higher ahead of the Bank of England (BoE) policy meeting as the central bank is widely expected to keep the benchmark interest rate at 0.50% while preserving the Asset Purchase Facility capped at GBP 375B.

Although BoE board member Charles Bean warned that the high levels of debt ‘will act as a drag on demand growth,’ we should see the majority of the Monetary Policy Committee remain on the sidelines as the Funding for Lending Scheme continues to work its way through the real economy, and the central bank may look to switch gears later this year as the U.K. skirts a triple-dip recession.

As the economic docket is expected to instill an improved outlook for Britain, we may see the GBPUSD continue to build a short-term base above the 1.5000 handle, and we may see the sterling recoup the losses from earlier this year should the BoE talk down speculation for more quantitative easing.

U.S. Dollar: Tumbles Lower Ahead of Boston Fed President Rosengren

The greenback gave back the advance from earlier this week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)tumbling to a low of 10,773, and the reserve currency may struggle to hold its ground during the North American trade should Boston Fed President Eric Rosengren, who also serves on the FOMC this year, strike a dovish tone for monetary policy.

Indeed, Mr. Rosengren may add to the discussion in tapering the Fed’s asset purchase program as the central bank aims to encourage a stronger recovery, but we may see a growing number of central bank officials start to become more upbeat on the economy as the region gets on a more sustainable path.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
EUR	14:00	10:00	Portugal Parliament Debates Government Spending Cuts
CAD	14:00	10:00	Bank of Canada Interest Rate Decision	1.00%	1.00%
USD	17:00	13:00	Fed's Eric Rosengren Speaks on U.S. Economy
NZD	22:45	18:45	Building Permits (MoM) (APR)		-9.1%

--- 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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Euro Remains Poised for Further Losses on ECB Policy

David Song, Currency Analyst — Tue, 28 May 2013 13:00:00 GMT

Although the EURUSD pared the decline from the holiday trade, the weakening outlook for the euro-area should continue to dampen the appeal of the single currency.

Talking Points

Euro: ECB Continues to Discuss Negative Interest Rates
British Pound: U.K. Home Prices, Private Lending to Improve
U.S. Dollar: Consumer Confidence, Dallas Fed Manufacturing Survey on Tap

Euro: ECB Continues to Discuss Negative Interest Rates

The Euro regained its footing on Tuesday, with the EURUSD bouncing back from an overnight low of 1.2882, but the single currency may struggle to hold its ground ahead of the next European Central Bank (ECB) interest rate decision on June 6 as the Governing Council maintains a dovish tone for monetary policy.

Although ECB board member Christian Noyer argued that negative interest rates will have varying results across the smaller countries, the Bank of Portugal warned that lenders in the periphery country will continue to face ‘major’ challenges amid the persistent slack in the real economy, while German Finance Minister Wolfgang Schaeuble said the monetary union needs to address the rise in youth unemployment as the euro-area remains mired in recession.

As the governments operating under the single currency become increasingly reliant on monetary policy, we should see the Governing Council continue to embark on its easing cycle in the second-half of the year, and the central bank may show a greater willingness to buy up Asset-Backed Securities (ABS) while implementing a negative interest rate policy (NIRP) as Governing Council member Peter Praet says the central bank will do whatever is necessary to shore up the ailing economy.

As the ECB continues to push into uncharted territory, the policy outlook is likely to produce further declines in the EURUSD, and the head-and-shoulders formation may continue to take shape in the days ahead as it retains the range-bound price action carried over from the previous week. As the pair appears to be carving a lower top just below the 1.3000 handle, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the bearish setup play out in the month ahead as the interest rate outlook deteriorates.

British Pound: U.K. Home Prices, Private Lending to Improve

The British Pound extended the rebound from the previous week, with the GBPUSD climbing to a high of 1.5133, and the sterling may continue to retrace the decline from earlier this year as the Bank of England (BoE) appears to be slowly moving away from its easing cycle.

As the economic docket for the U.K. is expected to show a further expansion in private sector credit along with higher home prices, a slew of positive developments should prop up the British Pound ahead of the BoE rate decision in June 6, and we may see the sterling outperform in the second-half of the year as the we see a growing number of central bank officials scale back their willingness to expand the balance sheet further.

In turn, the GBPUSD may continue to carve a higher low above the 1.5000 figure, and the pound-dollar may make another run at the 38.2% Fib from the 2009 low to high around 1.5680 amid the shift in the policy outlook.

U.S. Dollar: Consumer Confidence, Dallas Fed Manufacturing Survey on Tap

The greenback is struggling to maintain the advance from earlier this month, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)falling back from an overnight high of 10,836, but we may see the reserve currency regain its footing during the North American trade as the outlook for growth improves.

Beyond the S&P/Case-Shiller Home Price Index, a rise in the Conference Board’s Consumer Confidence survey paired with an uptick in the Dallas Fed Manufacturing index may prompt a bullish reaction in the USD, and the bullish sentiment surrounding the reserve currency should get carried into the second-half of the year as a growing number of Fed officials see the FOMC tapering the asset-purchase program in the coming months.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	13:00	9:00	S&P/Case-Shiller Composite-20 s.a. (MoM) (MAR)	1.00%	1.24%
USD	13:00	9:00	S&P/Case-Shiller Composite-20 (YoY) (MAR)	10.20%	9.32%
USD	13:00	9:00	S&P/Case-Shiller Home Price Index (MAR)		146.57
USD	13:00	9:00	S&P/Case-Shiller US Home Price Index (YoY) (1Q)		7.33%
USD	13:00	9:00	S&P/Case-Shiller US Home Price Index (1Q)		135.22
EUR	14:00	10:00	Bank of Portugal Financial Stability Report
USD	14:00	10:00	Richmond Fed Manufacturing Index (MAY)	-5	-6
USD	14:00	10:00	Consumer Confidence (MAY)	70.5	68.1
USD	14:30	10:30	Dallas Fed Manufacturing Activity (MAY)	-10.0	-15.6

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Fails to Breakout as ECB Fires Warning Shot- H&S Intact

David Song, Currency Analyst — Fri, 24 May 2013 12:10:00 GMT

Although the rebound in the EURUSD looks very appealing, the Euro remains poised to face additional headwinds over the near-term.

Talking Points

Euro: IFO Business Confidence Tops Forecast, ECB Warns of Market Uncertainty
British Pound: BoE Talks Down Bets for Rate Cut Amid ‘Modest’ Recovery
U.S. Dollar: Index Continues to Consolidate, Durable Goods Orders on Tap

Euro: IFO Business Confidence Tops Forecast, ECB Warns of Market Uncertainty

The Euro climbed to an overnight high of 1.2992 as Germany’s IFO Business Confidence survey advanced to 105.7 from 104.4 in April to mark the first rise in three-months, but we’re seeing the EURUSD struggle to breakout of the range from earlier this week as European policy makers maintain a cautious outlook for the region.

Although European Central Bank President (ECB) Mario Draghi argued that the non-standard measures have helped to increase stability across the monetary union, Governing Council member Jens Weidmann warned that delays to achieving the budget target ‘would risk an increase in market uncertainty,’ and went onto say that the high level of debt puts pressure on monetary policy as the governments operating under the fixed-exchange rate system become increasingly reliant on central bank support.

As European policy makers scale back their push for austerity, Mr. Weidmann added that the EU should allow for state bankruptcies, but we should see the ECB continue to embark on its easing cycle in the second-half of the year as the prolonged recession in the euro-area threatens the outlook for price stability.

In turn, we should see the head-and-shoulders pattern in the EURUSD continue to take shape ahead of the next ECB interest rate decision on June 6, and will look for a key break below the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 to see the Euro give back the rebound from back in July (1.2041).

British Pound: BoE Talks Down Bets for Rate Cut Amid ‘Modest’ Recovery

The British Pound continued to track higher on Friday, with the GBPUSD advancing to 1.5135, and the sterling may continue to retrace the decline from earlier this year as the Bank of England (BoE) appears to be slowly moving away from its easing cycle.

Although BoE board member Paul Fisher said the central bank should continue to shore up the U.K. economy, Mr. Fisher warned that the Monetary Policy Committee must keep a close eye on inflation expectations as price growth is expected to hold above the 2% target over the policy horizon, and went onto say that another rate cut would have a very limited impact in boosting demand amid the fiscal tightening.

As the BoE now sees a ‘modest’ recovery in the U.K., it appears as though the MPC will keep the Asset Purchase Facility capped at GBP 375B, and we may see a growing number of central bank officials start to discuss a tentative exit strategy in the second-half of the year as the region skirts a triple-dip recession.

As the GBPUSD continues to hold above the 1.5000 handle, the pair could be carving a higher low ahead of the next BoE policy meeting on June 6, and the sterling may track higher in the second-half of the year as the central bank scales back its willingness to expand the balance sheet further.

U.S. Dollar: Index Continues to Consolidate, Durable Goods Orders on Tap

The greenback is struggling to hold its ground on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)giving back the overnight advance to 10,824, but we may see the reserve currency regain its footing during the North American trade as the economic docket is expected to highlight an improved outlook for growth.

Indeed, demands for U.S. Durable Goods are expected to increase 1.7% in April after contracting 5.7% the month prior, but we will also keep a close eye on orders for Non-Defense Capital Goods excluding Aircrafts as it acts as a gauge for future business investment.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
EUR	12:30	8:30	ECB's Vitor Constancio Speaks on Financial Regulation
USD	12:30	8:30	Durable Goods Orders (APR)	1.7%	-5.7%
USD	12:30	8:30	Durables ex Transportation (APR)	0.5%	-1.4%
USD	12:30	8:30	Non-Defense Capital Goods Orders ex Aircrafts (APR)	0.5%	0.2%
USD	12:30	8:30	Non-Defense Capital Goods Shipment ex Aircrafts (APR)		0.3%
EUR	15:45	11:45	EU's Olli Rehn Speaks on Financial Regualtion

--- 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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Euro Continues to Carve Lower Top- ECB Increasingly Cautious

David Song, Currency Analyst — Thu, 23 May 2013 12:58:00 GMT

The rebound in the EURUSD is likely to be short-lived as the European Central Bank (ECB) maintains a cautious outlook for the region.

Talking Points

Euro: PMI Contracts at Slower Pace, More ECB Easing Ahead
British Pound: U.K. 1Q GDP Expands 0.3%, BoE to Target Inflation
U.S. Dollar: Jobless Claims Tops Forecast- House Prices, New Home Sales on Tap

Euro: PMI Contracts at Slower Pace, More ECB Easing Ahead

The Euro advanced to an overnight high of 1.2903 as the purchasing manager index showed manufacturing and service-based activity in Europe contracting at a slower pace in May, but the rebound in the single currency is likely to be short-lived as the region remains mired in recession.

European Central Bank board member Peter Praet said the board is looking ‘at all possibilities’ to shore up the ailing economy as the region struggles to return to growth, while Governing Council member Christian Noyer noted that the central bank is looking to introduce ‘monetary policy instruments that could further reduce fragmentation’ across the monetary union as the governments operating under the single currency struggle to get their house in order.

At the same time, ECB board member Ewald Nowotny warned that there’s little ‘indication that there will be a significant improvement in the economic situation in the short term,’ and warned that ‘we may see worse numbers in the course of the year’ as he sees the economy contracting in 2013.

As a growing number of Governing Council officials turn increasingly cautious on the economy, we should see the ECB push the benchmark interest rate to a fresh record-low in the second-half of the year, and it seems as though the central bank will also introduce more non-standard measures in the coming months in an effort to boost private sector lending.

As the EURUSD retains the range-bound price action from earlier this week, the pair should continue to carve a lower top going into the final days of May, and we should see the head-and-shoulders pattern continue to take shape in June as the ECB retains a dovish tone for monetary policy. 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 1.2640-50, and we may see the EURUSD fail to maintain the rebound from July (1.2041) as European policy makers struggle to address the risks surrounding the region.

British Pound: U.K. 1Q GDP Expands 0.3%, BoE to Target Inflation

The British Pound pared the sharp decline from earlier this week, with the GBPUSD climbing to a high of 1.5093, and the sterling may continue track higher in the days ahead as the fundamental developments coming out of the U.K. dampens speculation for more quantitative easing.

Indeed, the preliminary GDP reading showed the U.K. economy expanding 0.3% in the first quarter, with private sector consumption advancing 0.1%, and it seems as though the Bank of England (BoE) is slowly moving away from its easing cycle as the region skirts a triple-dip recession.

Although the Monetary Policy Committee has ‘had a hard time rebalancing’ the economy, BoE board member Ben Broadbent said that the central bank is focus on achieving the 2% target for inflation, and we may see a growing number of BoE officials scale back their willingness to expand the balance sheet further as price growth is expected to accelerate throughout the course of the year.

As the GBPUSD continues to give back the rebound from back in March (1.4830), we may see the pair develop a broader downward trend in the days ahead, but an upward revision in the preliminary 1Q GDP report may prop up the sterling over the next 24-hours of trading as it dampens bets for more QE.As a result, we may see the GBPUSD carve out a higher low ahead of the next BoE interest rate decision on June 6, and the sterling may outperform against its major counterparts in the second-half of 2013 amid the shift in the policy outlook.

U.S. Dollar: Jobless Claims Tops Forecast- House Prices, New Home Sales on Tap

The greenback lost ground on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)slipping to a low of 10,784, but the reserve currency may track higher during the North American trade as the economic docket is expected to instill an improved outlook for the U.K.

Indeed, U.S. initial and continuing claims both beat market expectations amid the ongoing improvement in employment, and the budding recovery in the housing market may further increase the appeal of greenback as home prices are expected to increase another 0.8% in March, while New Home Sales are projected to rise 1.9% in April.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	13:00	9:00	House Price Index (MoM) (MAR)	0.8%	0.7%
USD	13:00	9:00	House Price Purchase Index (QoQ) (1Q)		1.4%
USD	14:00	10:00	New Home Sales (APR)	425K	417K
USD	14:00	10:00	New Home Sales (MoM) (APR)	1.9%	1.5%
EUR	14:00	10:00	Euro-Zone Consumer Confidence (MAY A)	-21.8	-22.3
USD	15:00	11:00	Kansas City Fed Manufacturing Activity Index (MAY)	-5	-5
EUR	17:30	13:30	ECB's Jens Weidmann Speaks on Euro Economy
EUR	19:30	15:30	ECB President Mario Draghi Speaks on Euro Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Euphoria to Fizzle on ECB- EU Looks to Buy More Time

David Song, Currency Analyst — Wed, 22 May 2013 13:10:00 GMT

The EURUSD extended the advance from earlier this week as European policy makers pledged to address the risks surrounding the euro-area.

Talking Points

Euro: EU Pledges to Combat Unemployment, ECB to Remain Accommodative
British Pound: U.K. Retail Sales Disappoints, BoE Votes 6-3
U.S. Dollar: Chairman Bernanke, FOMC Minutes in Focus

Euro: EU Pledges to Combat Unemployment, ECB to Remain Accommodative

The Euro climbed to an overnight high of 1.2954 asEuropean Union Economic and Monetary Affairs Commissioner Olli Rehn pledged to do whatever it takes to combat record-high unemployment, but it seems as though the European Central Bank (ECB) will come under increased pressure to further support the monetary union as Mr. Rehn anticipates monetary policy to remain accommodative.

However, German Finance Minister Wolfgang Schaeuble argued that the Governing Council should not keep interest rates low for an extended period of timeas the governments operating under the single currency become increasingly reliant on monetary support, and we may see the EU make further attempts to buy more time as the group struggles to meet on common ground.

As European officials scale back their push for austerity, we should see the ECB continue to embark on its easing cycle in the second-half of the year, and it seems as though the central bank will introduce more non-standard measures in the coming months to help steer the region out of recession. At the same time, there’s growing bets that President Mario Draghi will deliver another 25bp rate cut at the June 6 meeting, and we may see a growing number of ECB officials favor a negative interest rate policy (NIRP) for the euro-area as the economic downturn threatens price stability.

Indeed, the head-and-shoulders formation in the EURUSD should continue to take shape as long as the pair holds below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, and the policy outlook is likely to produce further declines in the exchange rate as interest rate expectations falter.

British Pound: U.K. Retail Sales Disappoints, BoE Votes 6-3

The British Pound slipped to a fresh monthly low of 1.5073 as U.K. Retail Sales tumbled 1.4% in April amid forecasts for a 0.1% rise, but the shift in the policy outlook may prop up the sterling over the near to medium-term as the Bank of England (BoE) appears to be slowly moving away from its easing cycle.

Indeed, the BoE Minutes showed another 6-3 split within the Monetary Policy Committee, with Governor Mervyn King, David Miles and Paul Fisher continuing to push for another GBP 25B expansion in the Asset Purchase Facility, but it seems as though the central bank will carry its wait-and-see approach into the second-half of the year as the board sees inflation holding above the 2% target over the policy horizon. At the same time, the BoE did note that the persistent weakness in the euro-area may push up the Pound, but it seems as though the majority will stay clear of expanding the balance sheet further as more quantitative easing would complicate the exit strategy.

U.S. Dollar: Chairman Bernanke, FOMC Minutes in Focus

The greenback managed to hold its ground ahead of Fed Chairman Ben Bernanke’s testimony, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)tagging a high of 10,814, and the reserve currency may continue to track higher during the North American trade should the central bank head strike an improved outlook for the world’s largest economy.

Beyond the testament, market participants will also be paying close attention FOMC Minutes coming out at 18:00 GMT, and the fresh batch of central bank rhetoric may heighten the appeal of the USD should we see the committee adopt a more neutral to hawkish tone for monetary policy. In turn, we may see a fairly muted reaction to the Existing Home Sales report, and the policy outlook may push the dollar higher in the second-half of the year as we see a growing number of Fed officials show a greater willingness to scale back on QE.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	Fed Chairman Ben Bernanke Testifies on Economic Outlook
USD	14:00	10:00	Existing Home Sales (APR)	4.99M	4.92M
USD	14:00	10:00	Existing Home Sales (MoM) (APR)	1.3%	-0.6%
USD	14:30	10:30	DOE U.S. Crude Oil Inventories (MAY 17)		-624K
USD	14:30	10:30	DOE U.S. Distillate Inventory (MAY 17)		2300K
USD	14:30	10:30	DOE U.S. Gasoline Inventories (MAY 17)		2588K
EUR	16:30	12:30	ECB's Peter Praet Speaks on Monetary Policy
USD	18:00	14:00	Federal Open Market Committee Meeting Minutes

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Bearish Euro Formation Remains Intact- EU Summit to Disappoint

David Song, Currency Analyst — Tue, 21 May 2013 13:00:00 GMT

The EURUSD is struggling to hold its ground ahead of the EU meeting in Brussels amid a renewed flight to safety.

Talking Points

Euro: Bundesbank Raises 2Q Outlook, EU Meeting in Focus
British Pound: U.K. CPI Disappoints, BoE Minutes to Show 6-3 Split
U.S. Dollar: Fed’s Bullard, Dudley on Tap- Bernanke to Testify

Euro: Bundesbank Raises 2Q Outlook, EU Meeting in Focus

The Euro slipped to an overnight low of 1.2840 even as the Bundesbank raised its fundamental outlook for Europe’s largest economy and expects a marked pickup in growth during three-months through June, and the single currency may face additional headwinds over the next 24-hours of trading should European policy makers fail to restore investor confidence.

Indeed, the EU meeting in Brussels may disappoint as the governments operating under the monetary union struggle to meet on common ground, and the group may merely make another attempt to buy more time as they become increasingly reliant on monetary support. As the region remains mired in recession, the periphery countries may continue to scale back their push for austerity, and we should see the European Central Bank (ECB) continue to embark on its easing cycle as the economic downturn threatens price stability.

Indeed, the ECB may look to purchase Asset-Backed Securities (ABS) in an effort to steer the region out of recession, but a growing number of Governing Council officials may favor a negative-interest rate policy (NIRP) for the euro-area as the central bank continues to operate under its one and only mandate to ensure price stability.

As the policy outlook continues to highlight more ECB easing in the coming month, we should see the head-and-shoulders pattern in the EURUSD play out going into the second-half of the year, and we are still looking for a run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the pair searches for support.

British Pound: U.K. CPI Disappoints, BoE Minutes to Show 6-3 Split

The British Pound tumbled to a fresh monthly low of 1.5137 as the headline reading for U.K. inflation increased an annualized 2.4% in April amid forecasts for a 2.6% print, while core consumer prices climbed 2.0% during the same period to mark the slowest pace of growth since November 2009.

Indeed, easing price pressures may keep the Bank of England (BoE) on the sidelines as it aims to encourage a stronger recovery, but we may see a growing number of central bank officials adopt a more hawkish tone for monetary policy as U.K. officials see a ‘modest’ recovery in the region.

Although the BoE Minutes is widely expected to show another 6-3 split within the Monetary Policy Committee, the policy statement may highlight a greater willingness to normalize monetary policy, and we may see the central bank start to discuss a tentative exit strategy in the second-half of the year as the region is expected to face above-target inflation over the policy horizon.

In turn, we may see the GBPUSD continue to carve out a higher low during the final days of May, and the sterling may continue to retrace the decline from earlier this year amid the shift in the policy outlook.

U.S. Dollar: Fed’s Bullard, Dudley on Tap- Bernanke to Testify

The greenback regained its footing ahead of the FOMC Minutes, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a high of 10,805, and the reserve currency may continue to track higher over the next 24-hours of trading should we see a growing number of central bank officials show a greater willingness to scale back on quantitative easing.

As St. Louis Fed President James Bullard and New York Fed President William Dudley take note of the more robust recovery in the world’s largest economy, the fresh batch of central bank rhetoric may increase the appeal of the USD, and we may see Fed Chairman Ben Bernanke show a greater willingness to taper the asset-purchase program while testifying in front of Congress as the region gets on a more sustainable path.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	15:30	11:30	Fed's James Bullard Speaks on Monetary Policy
USD	16:30	12:30	BoC Governor Mark Carney Speaks on Canadian Economy
USD	17:00	13:00	Fed's William Dudley Speaks on Monetary Policy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro May Fail to Benefit from EU Meeting- Pound to Rally

David Song, Currency Analyst — Mon, 20 May 2013 12:55:00 GMT

The rebound in the EURUSD may be short-lived as European policy makers preserve a reactionary approach in addressing the risks surrounding the euro-area.

Talking Points

Euro: IMF Warns of More Support for Cyprus Ahead of EU Meeting
British Pound: BoE Governor King Sees Greater Scope to Normalize Policy
U.S. Dollar: Index Remains Overbought, Fed’s Evans on Tap

Euro: IMF Warns of More Support for Cyprus Ahead of EU Meeting

The Euro climbed to an overnight high of 1.2877 as European policy makers talked down the risk of a euro-area breakup, and the single currency may continue to consolidate ahead of the EU meeting on May 22 as the group continues to push for greater fiscal integration.

However, as the governments operating under the single currency scale back their push for austerity, Bundesbank President Jens Weidmann argued France should take additional steps to balance its budget deficit, and the group of European officials struggle to meet on common ground once again as the region remains mired in a prolonged recession.

Indeed, the International Monetary Fund(IMF) warned that that the risks surrounding the Cypriot bailout program is ‘unusually high’ as the periphery country struggles to return to growth, and warned that ‘additional financing measures may be needed to preserve debt sustainability’ as the EU maintains a reactionary approach in addressing the risks surrounding the region.

In turn, the European Central Bank (ECB) may come under increased pressure to further embark on its easing cycle, and it seems as though the Governing Council will introduce more non-standard measures while implementing a negative-interest rate policy (NIRP) as the economic downturn continues to threaten price stability.

As we continue to watch the head-and-shoulders in the EURUSD take shape, the pair looks poised to make a run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the EU meeting in Brussels fail to prop up the single currency should the group make another attempt to buy more time.

British Pound: BoE Governor King Sees Greater Scope to Normalize Policy

The British Pound pared the decline from the previous week, with the GBPUSD advancing to 1.5217, and the sterling may continue to track higher in the days ahead as the Bank of England (BoE) drops its dovish tone for monetary policy.

Indeed, BoE Governor Mervyn King held an improved outlook for the U.K. as he sees a ‘modest recovery’ in the region, and highlighted a greater willingness to normalize monetary policy as the Funding for Lending Scheme continues to work its way through the real economy.

Although the BoE Minutes is expected to show another 6-3 split within the Monetary Policy Committee, we may see growing number of central bank officials adopt a more neutral to hawkish tone for the region, and the central bank may start to discuss a tentative exit strategy in the second-half of the year as the U.K. skirts a triple-dip recession.

U.S. Dollar: Index Remains Overbought, Fed’s Evans on Tap

The greenback struggled to hold its ground on Monday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)slipping to a low of 10,775, and the reserve currency may continue to consolidate in the coming days as the rebound from earlier this month remains overbought.

Although the economic docket remains fairly light for the North American trade, Chicago Fed President Charles Evans is scheduled to speak later today, we may see a growing number of central bank officials talk down speculation for additional monetary support as the world’s largest economy gets on a more sustainable path. In turn, the shift in the policy outlook may produce a shallow correction in the USDOLLAR, and the bullish sentiment surrounding the greenback should gather pace over the near to medium-term as the FOMC appears to be slowly moving away from its easing cycle.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	13:55	9:55	Fed's Charles Evans Speaks on U.S. Economy	17:00	13:00

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Eyes Fresh 2013 Low on ECB Policy- Pound Rebound on Tap

David Song, Currency Analyst — Fri, 17 May 2013 12:40:00 GMT

The EURUSD remains under pressure on Friday as the European Central Bank (ECB) continued to strike a dovish tone for monetary policy.

Talking Points

Euro: ECB to Boost Lending, Banks to Repay EUR 1.1B of LTRO
British Pound: BoE Sees Limited Scope for More QE, Minutes in Focus
U.S. Dollar: Index Hits Fresh High, U. of Michigan Confidence on Tap

Euro: ECB to Boost Lending, Banks to Repay EUR 1.1B of LTRO

The Euro slipped to 1.2830 as European Central Bank (ECB) board member Benoit Coeure reiterated that the Governing Council is ‘exploring options to further strengthen lending to the real economy and, in particular, to small and medium-sized enterprises,’ and it seems as though the central bank will continue to embark on its easing cycle over the coming months as the region struggles to return to growth.

At the same time, Governing Council member Joerg Asmussen warned some region in the euro-area may face a ‘decade of adjustment’ as European policy makers scale back their push for austerity, and went onto say that monetary policy will remain expansive as long as needed as the governments operating under the single currency become increasingly reliant on monetary support.

As commercial banks in the euro-area look to repay another EUR 1.1B of the Long-Term Refinancing Operations (LTRO), the weakening outlook for private sector lending may prompt the ECB to introduce more non-standard measures over the coming months, and we may see a growing number of central bank officials show a greater willingness to purchase Asset-Backed Securities (ABS) in an effort to steer the region out of recession. At the same time, negative interest rate may become a reality for the euro-area as the economic downturn threatens price stability, and the single currency remains poised to face additional headwinds over the near to medium-term as the outlook for growth and inflation remains bleak.

Indeed, we will look for further declines in the EURUSD as the head-and-shoulders pattern continues to play out, and we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as it searches for support.

British Pound: BoE Sees Limited Scope for More QE, Minutes in Focus

The British Pound struggled to hold its ground on Friday, with the GBPUSD tagging an overnight low of 1.5210, but the recent decline in the exchange rate is likely to be short-lived as the Bank of England (BoE) continues to scale back its willingness to expand the balance sheet further.

Indeed, BoE board member Marin Weale said there’s limited scope to expand the Asset Purchase Facility beyond the GBP 375B target as it presents a risk to inflation expectations, and we may see a growing number of Monetary Policy Committee officials adopt a more neutral to hawkish tone for monetary policy as the central bank sees a moderate and sustainable recovery in the U.K.

In turn, the BoE Minutes due out on May 22 may further dampen expectations for more quantitative, and we should see the sterling should continue to retrace the sharp decline from earlier this year amid the shift in the policy outlook.

U.S. Dollar: Index Hits Fresh High, U. of Michigan Confidence on Tap

The greenback continued to push higher on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a fresh yearly high of 10,803, and the reserve currency may continue to gain ground throughout the North American trade as the economic docket is expected to reinforce an improved outlook for growth.

As the U. of Michigan Confidence survey is expected to increase to 77.9 in May, a sharp rebound in household sentiment may increase the appeal of the USD, and the bullish sentiment surrounding the greenback should gather pace as the fundamental developments coming out of the world’s largest economy dampens speculation for more Fed support.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	13:55	9:55	U. of Michigan Confidence (MAY P)	77.9	76.4
USD	14:00	10:00	Leading Indicators (APR)	0.2%	-0.1%
USD	14:00	10:00	Revisions: Factory Orders
USD	17:45	13:45	Fed's Narayana Kocherlakota Speaks on Monetary Policy
CNY	1:30	21:30	Property Prices (APR)
USD	15:00	11:00	Fed Chairman Ben Bernanke Speaks on U.S. Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Continues to Search for Support- Pound Carving Higher Low

David Song, Currency Analyst — Thu, 16 May 2013 12:05:00 GMT

The EURUSD pared the decline from earlier this week, but the Euro remains poised to face additional headwinds over the near-term amid the ongoing turmoil in the region.

Talking Points

Euro: EZ Posts Record Trade Surplus- ECB Can Only Buy Time
British Pound: Caves Higher Low Ahead of BoE Minutes

Euro: EZ Posts Record Trade Surplus- ECB Can Only Buy Time

The Euro bounced back from an overnight low of 1.2845 as the monetary union posted a record trade surplus of EUR 18.7B in March, but the rebound in the single currency may be short-lived as European policy makers maintain a reactionary approach in addressing the risks surrounding the region.

Indeed, EU Commission President Jose Manuel Barroso took a shot at Germany and said Europe’s largest economy must contribute to the rebalancing of the euro-area as the EU struggles to make progress on the banking union, while German Finance Minister Wolfgang Schaeuble argued that the European Central Bank (ECB) can only buy time for the monetary union as the periphery countries become increasingly reliant on monetary support.

As governments operating under the monetary union scale back their push for austerity, we should see the ECB continue to embark on its easing cycle over the coming months, and President Mario Draghi may implement further non-standard measures paired with negative interest rates as the region struggles to return to growth.

As the head-and-shoulders formation in the EURUSD continues to pan out, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we will maintain a bearish outlook for the single currency as the outlook for growth and inflation in Europe remains weak.

British Pound: Caves Higher Low Ahead of BoE Minutes

The British Pound appears to be carving out a higher low as the GBPUSD bounces back from a low 1.5196, and the sterling may continue to track higher ahead of the Bank of England (BoE) Minutes on tap for May 22 as market participants scale back bets for more quantitative easing.

As the BoE raises its growth forecast for the U.K., we may see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the board may slowly move away from its easing cycle in the second-half of the year as they see a modest and sustainable recovery in Britain.

Although the GBPUSD has failed to maintain the ascending channel carried over from the previous month, the shift in the policy outlook continues to cast a bullish outlook for the sterling, and the British Pound remains poised to retrace the decline from earlier this year as the BoE looks to switch gears later this year.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
CAD	12:30	8:30	International Securities Transactions (Canadian dollar) (MAR)		-6.31B
USD	12:30	8:30	Consumer Price Index (MoM) (APR)	-0.3%	-0.2%
USD	12:30	8:30	Consumer Price Index (YoY) (APR)	1.3%	1.5%
USD	12:30	8:30	Consumer Price Index ex Food & Energy (MoM) (APR)	0.2%	0.1%
USD	12:30	8:30	Consumer Price Index ex Food & Energy (YoY) (APR)	1.8%	1.9%
USD	12:30	8:30	Consumer Price Index n.s.a. (APR)	232.7	232.773
USD	12:30	8:30	Consumer Price Index Core Index s.a. (APR)		232.758
USD	12:30	8:30	Initial Jobless Claims (MAY 11)	330K	323K
USD	12:30	8:30	Continuing Claims (MAY 4)	3003K	3005K
USD	12:30	8:30	Housing Starts (APR)	980K	1036K
USD	12:30	8:30	Housing Starts (MoM) (APR)	-5.4%	7.0%
USD	12:30	8:30	Building Permits (APR)	940K	902K
USD	12:30	8:30	Building Permits (MoM) (APR)	3.6%	-3.9%
USD	13:00	9:00	Fed's Richard Fisher Speaks on U.S. Economy, Monetary Policy
EUR	13:30	9:30	ECB's Peter Praet Speaks on Euro Economy
EUR	14:00	10:00	ECB's Erkki Liikanen Speaks on Euro Economy
USD	14:00	10:00	Philadelphia Fed Survey (MAY)	2.3	1.3
CAD	14:30	10:30	Bank of Canada Publishes Quarterly Review
USD	19:05	15:05	Fed's John Williams Speaks on Monetary Policy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Falters as 1Q GDP Disappoints, Pound Rebounds on BoE

David Song, Currency Analyst — Wed, 15 May 2013 10:40:00 GMT

The EURUSD extended the decline from earlier this as the fundamental developments coming out of the region dampen the appeal of the single currency.

Talking Points

Euro: EZ 1Q GDP Disappoints, H&S Continues to Pan Out
British Pound: BoE Raises Growth Outlook- Supports Inflation-Targeting Framework
U.S. Dollar: Producer Prices, Industrial Production on Tap

Euro: EZ 1Q GDP Disappoints, H&S Continues to Pan Out

The Euro slid to a fresh monthly low of 1.2874 as the region’s 1Q GDP report showed the growth rate contracting 0.3% versus forecasts for a 0.1% decline, and the prolonged recession may continue to drag on the exchange rate as it fuels speculation for additional monetary support.

As the euro-area struggles to return to growth, the European Central Bank (ECB) may come under increased pressure to further embark on its easing cycle, and we may see a growing argument to purchase Asset-Backed Securities (ABS) in an effort to encourage a stronger recovery. At the same time, negative interest rates may also turn into a real option for the Governing Council amid the ongoing turmoil in the periphery countries, and the central bank may continue to push into uncharted territory as the governments operating under the single currency become increasingly reliant on monetary support.

As the head-and-shoulders in the EURUSD continues to play out, the pair looks poised to give back the rebound from back in April (1.2743), and we may see a move back towards the 23.65 Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental outlook for the euro-area turns increasingly bleak.

British Pound: BoE Raises Growth Outlook- Supports Inflation-Targeting Framework

The British Pound rallied to 1.5271 as the Bank of England (BoE) raised its growth forecast for the U.K., and the short-term rebound in the sterling may gather pace in the days ahead as market participants scale back bets for more quantitative easing.

Indeed, Governor Mervyn King struck up support for the inflation-targeting framework as the BoE sees a modest and sustainable recovery in Britain, but it seems as though there’s growing concerns surrounding the central bank’s credibility as price growth is expected to hold above the 2% over the policy horizon. In turn, we should see the Monetary Policy Committee slowly move away from its easing cycle, and the central bank may lay out a tentative exit strategy in the coming months as the region turns to growth.

As the GBPUSD continues to carve a higher base around the 1.5200 region, we may see another run at the 38.2% Fib from the 2009 low to high around 1.5680, and the sterling may continue to retrace the decline from earlier this year as the BoE adopts a more neutral to hawkish tone for monetary policy.

U.S. Dollar: Producer Prices, Industrial Production on Tap

The greenback extended the advance from earlier this week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)rallying to a fresh yearly high of 10,763, but the reserve currency may consolidate going into the North American trade as the economic docket is expected to dampen the outlook for growth and inflation.

A slowdown in U.S. Producer Prices along with a drop in Industrial Production may drag on the exchange rate as it raises expectations for more Fed support, but the reserve currency may stay afloat throughout the day should the flight to safety gather pace. In turn, we anticipate to see further USD strength over the near to medium-term, but the dollar remains poised for a correction as the recent rally becomes overbought.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	11:00	7:00	MBA Mortgage Applications (MAY 10)		7.0%
CAD	12:30	8:30	Manufacturing Shipments (MoM) (MAR)	0.5%	2.6%
USD	12:30	8:30	Empire Manufacturing (MAY)	4.00	3.05
USD	12:30	8:30	Producer Price Index (MoM) (APR)	-0.6%	-0.6%
USD	12:30	8:30	Producer Price Index (YoY) (APR)	0.8%	1.1%
USD	12:30	8:30	Producer Price Index Ex Food & Energy (MoM) (APR)	0.1%	0.2%
USD	12:30	8:30	Producer Price Index Ex Food & Energy (YoY) (APR)	1.7%	1.7%
CAD	13:00	9:00	Existing Home Sales (MoM) (APR)		2.4%
USD	13:00	9:00	Net Long-term TIC Flows (MAR)		-$17.8B
USD	13:00	9:00	Total Net TIC Flows (MAR)		$53.6B
USD	13:15	9:15	Industrial Production (APR)	-0.1%	0.4%
USD	13:15	9:15	Capacity Utilization (APR)	78.3%	78.5%
USD	13:15	9:15	Manufacturing Production (SIC) (APR)	0.0%	-0.1%
USD	14:00	10:00	NAHB Housing Market Index (MAY)	43	42
USD	14:30	10:30	DOE U.S. Crude Oil Inventories (MAY 10)		230K
USD	14:30	10:30	DOE U.S. Distillate Inventory (MAY 10)		1812K
USD	14:30	10:30	DOE U.S. Gasoline Inventories (MAY 10)		-910K
NZD	22:30	18:30	Business NZ Performance of Manufacturing Index (APR)		53.4

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Struggles as EU Meeting Disappoints- 1Q GDP in Focus

David Song, Currency Analyst — Tue, 14 May 2013 12:45:00 GMT

The EURUSD is struggling to hold its ground ahead of the Euro-Zone’s 1Q GDP report as the EU meeting in Brussels disappoints.

Talking Points

Euro: EU Meeting Disappoints- EZ 1Q GDP to Contract
British Pound: Searches for Support- To Consolidate Ahead of BoE
U.S. Dollar: Import Prices Slows Less-Than-Expected, Fed Report on Tap

Euro: EU Meeting Disappoints- EZ 1Q GDP to Contract

The Euro slipped to a low of 1.2945 as the European Union continued to clash over a bank resolution for the monetary union, and the single currency may continue to give back the rebound from the previous month as the fundamental outlook for the region remains clouded with high uncertainty.

As European policy makers struggle to meet on common ground, the EU remains poised to retain a reactionary approach in addressing the risks surrounding the region, and we may see the group make further attempts to buy more time as the governments operating under the fixed-exchange rate system scale back their push for austerity.

Indeed, the Euro may face additional headwinds over the next 24-hours of trading as the advance GDP report is expected to show the growth rate contracting another 0.1% in the first-quarter, and the prolonged recession may prompt the European Central Bank (ECB) to further embark on its easing cycle over the coming months as the economic downturn threatens price stability.

As growth and inflation deteriorates, we may see a growing number of ECB officials show a greater willingness to implement negative interest rates in the euro-area, but the Governing Council may also look to purchase Asset-Backed Securities (ABS) as the periphery countries become increasingly reliant on monetary support.

In turn, we should see the head-and-shoulders pattern in the EURUSD continue to pan out, and we will look for a further decline in the exchange rate as the pair carves a lower top in May. As the EURUSD continues to come off of the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, we should see the euro-dollar give back the rebound from the previous month, and the pair may work its way back towards the 23.6% retracement around 1.2640-50 to test for support.

British Pound: Searches for Support- To Consolidate Ahead of BoE

The British Pound extended the decline from earlier this week, with the GBPUSD tagging a low of 1.5257, but we may see the sterling consolidate ahead of the Bank of England (BoE) inflation report on tap for later this week as market participants weigh the outlook for monetary policy.

As the BoE preserves its current policy, the updated forecast may instill an improved outlook for the U.K., and we may see a growing number of central bank officials scale back their willingness to expand the balance sheet further as they see a slow but sustainable recovery in Britain.

Indeed, the BoE may sound more hawkish this time around as the U.K. skirts a triple dip recession, and we may see the GBPUSD track higher ahead of the quarterly report as the pair appears to be finding support around the 50.0% Fib from the 2009 low to high around 1.5260. In turn, we may the pound-dollar regain its footing over the next 24-hours of trading, and the pair may continue to retrace the decline from earlier this year should the central bank strike an improved outlook for the region.

U.S. Dollar: Import Prices Slows Less-Than-Expected, Fed Report on Tap

The greenback continued to appreciate on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)climbing to a fresh yearly high of 10,710, and we may see the reserve currency strengthen further during the North American trade as the economic docket dampens bets for more Fed support.

Import prices in the world’s largest economy contracted an annualized 2.6% amid forecast for a 3.1% drop, and the slowing decline in price growth may encourage the FOMC to adopt a more neutral to hawkish tone for monetary policy as the economic recovery gradually gathers pace. At the same time, New York Fed’s household debt report on tap for later today may further dampen bets for more quantitative easing should we see a marked expansion in consumer credit, and we may see the central bank slowly move away from its highly accommodative policy stance as the economy gets on a more sustainable path.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	15:00	11:00	New York Fed Releases Household Debt Report

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Bearish Euro Formation Continues to Take Shape Amid Dovish ECB

David Song, Currency Analyst — Mon, 13 May 2013 12:50:00 GMT

The EURUSD pared the sharp decline from last week, but the rebound may be short-lived as the European Central Bank (ECB) retains a dovish tone for monetary policy.

Talking Points

Euro: ECB Looking at ABS Purchases, Negative Interest Rates
British Pound: Struggles to Hold Bullish Trend Ahead of BoE Inflation Report
U.S. Dollar: Retail Sales Tops Forecast, Business Inventories on Tap

Euro: ECB Looking at ABS Purchases, Negative Interest Rates

The Euro regained its footing on Monday, with the EURUSD climbing to a high of 1.2994, but the single currency remains poised to face additional headwinds over the near-term as the European Central Bank (ECB) continues to embark on its easing cycle.

Indeed, ECB President Mario Draghi continued to float the idea of purchasing asset-backed securities as the advance GDP report is expected to show the economy contracting another 0.1% in the first-quarter, while Governing Council member Ignazio Visco said negative interest rates in the euro-area may be ‘effective’ as the economic downturn threatens price stability.

At the same time, former ECB board member Lorenzo Bini Smaghi said Italy should tap the European Stability Mechanism (ESM) and ‘use the funds to recapitalize its banking system’ amid the ongoing turmoil in the periphery country, and we may see the governments operating under the monetary union become increasingly reliant on external support as they struggle to get their house in order.

However, there are reports that German Finance Minister Wolfgang Schaeuble spoke out against the ECB as the central bank looks to implement more non-standard measures, and the Governing Council may come under increased criticism as President Draghi continues to push monetary policy into uncharted territory. As European finance ministers get ready to convene in Brussels, positive headlines coming out of the meeting may help to prop up the Euro over the next 24-hours of trading, but we may see the EU make another attempt to buy more time as the group struggles to meet on common ground.

As the EURUSD carves a lower top in May, we may see the head-and-shoulders pattern continue to take shape in the days ahead, and we are looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental developments coming out of the euro-area continues to dampen the outlook for growth and inflation.

British Pound: Struggles to Hold Bullish Trend Ahead of BoE Inflation Report

The British Pound pared the sharp decline from the previous week, with the GBPUSD advancing to 1.5383, and the sterling may continue to track higher ahead of the Bank of England (BoE) inflation report as the central bank appears to be slowly moving away from its easing cycle.

Although the GBPUSD pierced through trendline support during the previous week, we’re seeing the pair hold above the 50.0% Fib from the 2009 low to high around 1.5260, and the sterling may continue to recoup the losses from earlier this year amid the shift in the policy outlook. Indeed, the BoE may raise its fundamental assessment for the U.K. as the economy skirts a triple-dip recession, and we may see the central bank talk down bets for more quantitative easing as it extends the Funding for Lending Scheme for another 12-months.

However, as the relative strength index on the GBPUSD fails to maintain the upward trend carried over from March, we may see the pair continue to consolidate ahead of the quarterly update, and the pound-dollar may fall back towards the 50.0% retracement around 1.5260 as it searches for support.

U.S. Dollar: Retail Sales Tops Forecast, Business Inventories on Tap

The greenback extended the advance from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)tagging a high of 10,694, and the bullish sentiment surrounding the reserve currency may gather pace over the near-term as the economic docket reinforces an improved outlook for the world’s largest economy.

Retail spending in the U.S. unexpectedly advanced 0.1% in April amid forecasts for a 0.3% decline, and the resilience in private sector consumption may continue to increase the appeal of the reserve currency as it dampens the Fed’s scope to expand the balance sheet further. As Business Inventories are projected to climb another 0.3% in March, another positive print may push the dollar higher throughout the North America trade, but the greenback may face a short-term correction in the days ahead as the recent advance becomes overbought.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
13:00	9:00	13:00	Euro-Zone Finance Ministers Meet in Brussels
14:00	10:00	14:00	Business Inventories (MAR)	0.3%	0.1%
22:45	18:45	22:45	Retail Sales ex Inflation (QoQ) (1Q)	0.8%	2.1%
23:01	19:01	23:01	RICS House Price Balance (APR)	2%	-1%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Looks Lower Ahead of G-7 as EU Scales Back on Austerity

David Song, Currency Analyst — Fri, 10 May 2013 12:20:00 GMT

The EURUSD may continue to give back the rebound from the previous month (1.2743) as the EU retains a reactionary approach in addressing the risks surrounding the region.

Talking Points

Euro: Germany Scales Back Push for Austerity, G-7 Meeting in Focus
British Pound: UK Construction Misses Forecast, BoE Inflation Report on Horizon

Euro: Germany Scales Back Push for Austerity, G-7 Meeting in Focus

The Euro slipped to a fresh monthly low of 1.2976 ahead of the G-7 meeting as European policy makers continued to scale back their push for austerity, and the single currency may ultimately give back the rebound from April (1.2743) as the fundamental outlook for the region remains clouded with high uncertainty.

Indeed, German Finance Minister Wolfgang Schaeuble said the governments operating under the monetary union have ‘enough room to maneuver’ on public finances as the euro-area remains mired in recession, and warned about the ongoing deterioration in the labor market as the region faces record-high unemployment. In turn, the European Central Bank (ECB) is likely to come under increased pressure to carry out its easing cycle throughout 2013, and we may see the Governing Council continue to take unprecedented steps to shore up the ailing economy as a growing number of central bank officials see scope for negative interest rates in Europe.

As commercial banks are expected to pay back another EUR 6.36B of the Long-Term Refinancing Operations (LTRO), narrowing balance sheets may continue to drag on private sector lending, and we should see the ECB continue to strike a dovish tone for monetary policy as the outlook for growth and inflation remains weak.

Nevertheless, as the G-7 meeting in the U.K. comes into focus, the group of world officials may continue to criticize the reactionary approach taken by the EU, and the single currency remains poised to face additional headwinds over the near to medium-term as it carves out a lower top in May.

As we continue to watch the head-and-shoulders pattern play out, we should see a more meaningful move to the downside, and the EURUSD may work its way back to the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as it struggles to maintain the rebound from the previous month.

British Pound: UK Construction Misses Forecast, BoE Inflation Report on Horizon

The British Pound extended the decline from earlier this week, with the GBPUSD slipping to a fresh monthly low of 1.5377, but the weakness may be short-lived should the Bank of England (BoE) strike an improved outlook for the U.K.

Indeed, the GBPUSD is threatening the bullish trend dating back to March as U.K. Construction Outputs increased 12.1% in March amid forecasts for a 15.0% print, but the BoE’s Inflation report on tap for May 15 may prop up the sterling as the central bank sees a slow but sustainable recovery in Britain.

As the region skirts a triple-dip recession, the BoE may raise its fundamental assessment for the region, and the central bank may sound more hawkish this time around as the U.K. economy is expected to face above-target inflation over the policy horizon.

Nevertheless, as the relative strength index on the GBPUSD struggles to maintain the upward trend from earlier this year, we may see the sterling fall back towards the 50.0% Fib from the 2009 low to high around 1.5260, but the shift in the policy outlook should continue to prop up the British Pound as market participants scale back bets for more quantitative easing.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
CAD	12:30	8:30	Unemployment Rate (APR)	7.2%	7.2%
CAD	12:30	8:30	Net Change in Employment (APR)	15.0K	-54.5K
CAD	12:30	8:30	Full Time Employment Change (APR)		-54
CAD	12:30	8:30	Part Time Employment Change (APR)		-0.4
CAD	12:30	8:30	Participation Rate (APR)	66.7	66.6
USD	13:30	9:30	Fed's Bernanke Speaks at Chicago Fed Conference
USD	18:00	14:00	Monthly Budget Statement (APR)	$106.0B
USD	18:00	14:00	Fed's George Speaks on the Economy in Jackson, Wyoming

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Dragged Down by Dovish ECB, Pound Traders Eye BoE Report

David Song, Currency Analyst — Thu, 09 May 2013 12:45:00 GMT

The EURUSD is coming under pressure on Thursday as the European Central Bank (ECB) continues to strike a dovish tone for monetary policy.

Talking Points

Euro: ECB Warns of Deepening Recession- Further Easing Ahead
British Pound: BoE Maintains Current Policy, Inflation Report in Focus
U.S. Dollar: Jobless Claims Top Forecast- Wholesale Sales, Inventories on Tap

Euro: ECB Warns of Deepening Recession- Further Easing Ahead

The Euro failed to maintain the overnight advance to 1.3176 as the European Central Bank’s (ECB) monthly report warned of a deepening recession in the monetary union, and the single currency may continue to carve a lower top in the days ahead as the Governing Council remains poised to retain its easing cycle over the near to medium-term.

Although ECB board member Joerg Asmussen warned of keeping the interest rate too low for too long, the ECB said ‘the monetary policy stance will remain accommodative for as long as needed’ as the euro-area is now expected to contract an annualized 0.4% in 2013. Indeed, the Governing Council went onto say that it will ‘start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations’ in order to encourage private sector lending, and it seems as though the central bank will embark on more non-standard measures later this year as the ‘underlying pace of monetary expansion continues to be subdued.’

As the outlook for growth and inflation deteriorates, it seems as though the ECB will draw up a new program to purchase asset-backed securities in order to encourage lending to small and medium-sized firms, while the benchmark interest rate may get pushed closer to zero as the economic downturn threatens price stability.

As the EURUSD appears to be carving a head-and-shoulders formation, the pair should continue to carve a lower top in May, and would like to see the euro-dollar close back below the 38.2% Fib from the 2009 high to the 2010 low around 1.3120 as we anticipate the reversal pattern to take shape in the days ahead.

British Pound: BoE Maintains Current Policy, Inflation Report in Focus

The British Pound continued to pare the decline from earlier this week and the bullish sentiment surrounding the sterling should gather pace over the near-term as the Bank of England keeps the benchmark interest rate at 0.50% while maintaining its asset purchase program at GBP 375B.

Although the Monetary Policy Committee refrained from releasing a policy statement, the BoE Minutes should show another 6-3 split as the central bank appears to be slowly moving away from its easing cycle. As BoE officials anticipate a slow but sustainable recovery in the U.K., we should see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the quarterly inflation report on tap for the following week may further dampen expectations for more quantitative easing should the central bank raise its fundamental assessment for Britain.

As market participants weigh the outlook for monetary policy, the GBPUSD may continue to track sideways ahead of the BoE’s inflation report, while the technical outlook continues to call for further advances as the pair maintains the upward trending channel carried over from March.

U.S. Dollar: Jobless Claims Top Forecast- Wholesale Sales, Inventories on Tap

The greenback appears to be regaining its footing going into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)bouncing back from a low of 10,479, and the reserve currency may continue to track higher over the remainder of the week as the fundamental outlook for the U.S. improves.

Indeed, U.S. Initial Jobless Claims narrowed to 323K in the week ending May 3 to mark the lowest reading since January 2008, while Continuing Claims slipped to 3005K amid forecasts for a 3018K print. As the developments coming out of the world’s largest economy encourages an improved outlook for growth, we should see a growing number of Fed officials scale back their willingness to expand the balance sheet further, and the central bank may start to look at a tentative exit strategy later this year as the recovery gradually gathers pace.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
GBP	14:00	10:00	NIESR GDP Estimate (Apr)		0.1%
USD	14:00	10:00	Wholesale Inventories (Mar)	0.4%	-0.3%
USD	14:30	10:30	Wholesale Sales MoM (Mar)	0.1%	1.7%
USD	17:15	13:15	Fed's Plosser Speaks on Monetary Policy in New York

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Outlook Weighed By ECB Policy- ABS Purchases on Horizon?

David Song, Currency Analyst — Wed, 08 May 2013 12:55:00 GMT

The EURUSD may struggle to retain the range from earlier this month as the European Central Bank (ECB) looks to further embark on its easing cycle.

Talking Points

Euro: German Industrial Outputs Increase- ECB to Look at ABS Purchases
British Pound: Eyes 38.2% Fib as BoE Poised to Maintain Current Policy
U.S. Dollar: To Consolidate on Light Economic Calendar

Euro: German Industrial Outputs Increase- ECB to Look at ABS Purchases

The Euro climbed to 1.3146 as Industrial Production in Germany unexpectedly increased another 1.2% during the month of March, but the single currency may continue to carve a lower top in May as the European Central Bank (ECB) looks to further embark on its easing cycle in 2013.

Although Cyprus is expected to receive the first tranche of the EUR 10.0B bailout in mid-May, EU Economic and Monetary Affairs Commissioner Olli Rehnsaid ‘Slovenia has excessive macroeconomic imbalances both as regards problems in its banking sector and in its public finances,’ and we may see the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support as they struggle to get their house in order.

As the euro-area remains mired in recession, ECB board member Joerg Asmussen floated the idea of purchasing asset-backed securities to encourage lending to small and medium-sized firms, and went onto say that the Governing Council stands ready to act again as the fundamental outlook for the euro-area remains clouded with high uncertainty.

As the EURUSD persistently fails to close above 1.3120 – the 38.2% Fibonacci retracement from the 2009 high to the 2010 low – the pair may continue to carve a lower top below the 1.3300 pivot, and the single currency remains poised to face additional headwinds over the near to medium-term as European policy makers maintain a reactionary approach in addressing the risks surrounding the region.

British Pound: Eyes 38.2% Fib as BoE Poised to Maintain Current Policy

The British Pound appears to be regaining its footing ahead of the Bank of England (BoE) interest rate decision, with the GBPUSD advancing to 1.5515, and the sterling may track higher over the remainder of the week as market participants scale back bets for more quantitative easing.

Although we anticipate the BoE to refrain from releasing a policy statement, the neutral policy stance held by the Monetary Policy Committee should help to prop up the sterling, and we may see the central bank slowly move away from its easing cycle over the coming months as the U.K. skirts a triple-dip recession. As the region is expected to face above-target inflation over the next three-years, the BoE Minutes due out on May 22 may further dampen speculation for additional monetary support, and the central bank may start to lay out a tentative exit strategy towards the end of the year as the central bank continues to operate under its dual mandate to ensure price stability while fostering full-employment.

In turn, we should see the upward trending channel in the GBPUSD continue to take shape, and the pair may make a run at 38.2% Fibonacci retracement from the 2009 low to high around 1.5680 amid the shift in the policy outlook.

U.S. Dollar: To Consolidate on Light Economic Calendar

The greenback is struggling to hold its ground on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)tumbling to a low of 10,498, and the reserve currency may continue to consolidate throughout the North American trade as the economic docket remains fairly light for the remainder of the day.

In turn, we may see the USDOLLAR continue to pare the rebound from earlier this month, but the bullish sentiment surrounding the greenback should gather pace in the days ahead as the economic docket is expected to show an improved outlook for the U.S. economy.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
NZD	22:45	18:45	Unemployment Rate (1Q)	6.8%	6.9%
NZD	22:45	18:45	Employment Change (QoQ) (1Q)	1.0%	-1.0%
NZD	22:45	18:45	Employment Change (YoY) (1Q)	-0.7%	-1.4%
NZD	22:45	18:45	Participation Rate (QoQ) (1Q)	67.9%	67.2%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Euro Rebound to Fizzle- EU Calls for More ECB Support

David Song, Currency Analyst — Tue, 07 May 2013 13:00:00 GMT

Positive data coming out of Europe propped up the EURUSD on Tuesday, but the rebound is likely to be short-lived as the region remains mired in recession.

Talking Points

Euro: German Factory Orders Top Forecast, More ECB Support Ahead
British Pound: Continues to Consolidate Ahead of BoE Rate Decision
U.S. Dollar: Extends Advance- Consumer Credit on Tap

Euro: German Factory Orders Top Forecast, More ECB Support Ahead

The Euro advanced to a high of 1.3130 as German Factory Orders unexpectedly increased another 2.2% March, while there’s reports Portugal will auction 10-year bonds for the first time since the 2011 bailout amid easing finance costs in Europe.

However, it seems as though the governments operating under the single currency are becoming increasingly reliant on monetary support as Spanish Prime Minister Mariano Rajoy calls upon the European Central Bank (ECB) to introduce additional programs to help finance small businesses, while Euro Group President Jeroen Dijsselbloem said the region needs tools to recapitalize commercial banks as the ECB plans to conduct asset-quality review of financial institutions.

As ECB President Mario Draghi stands ready to shore up the ailing economy, we should see the Governing Council continue to embark on its easing cycle over the coming months, and the central bank may show a greater willingness to implement negative interest rates in the euro-area as the region struggles to return to growth. In turn, the ECB monthly report due out Thursday may fuel speculation for additional monetary support, and the EURUSD remains poised to face additional headwinds over the near to medium-term as the outlook for growth and inflation remains weak.

Indeed, the EURUSD may continue to carve a lower top in May as it struggles to close back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, and we may see the pair give back the rebound from April (1.2743) as European policy makers maintain a reactionary approach in address the ongoing turmoil in the periphery countries.

British Pound: Continues to Consolidate Ahead of BoE Rate Decision

The British Pound continued to consolidate ahead of the Bank of England (BoE) interest rate decision, with the GBPUSD slipping to a low of 1.5520, but we should see the sterling maintain the upward trend dating back to March as the central bank appears to be slowly moving away from its easing cycle.

Although the BoE is widely expected to stick to its current policy, we may see the Monetary Policy Committee refrain from releasing a policy statement once again, but the meeting minutes due out on May 22 may continue to dampen expectations for more quantitative easing as the central bank sees a slow but sustainable recovery in the U.K.

Nevertheless, as we have the BoE Inflation Report scheduled for May 15, the quarterly release may take some steam out of the policy statement, but the fresh batch of central bank rhetoric may fuel a short-term rally in the British Pound as the BoE adopts a more neutral tone for monetary policy.

In turn, we may see the GBPUSD retain the range-bound price action carried over from the previous week, but the pair should continue to retrace the decline from earlier this year as the bullish trend continues to take shape.

U.S. Dollar: Extends Advance- Consumer Credit on Tap

The greenback tracked higher on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to 10,530, and the reserve currency may appreciate further during the North American trade as the fundamental outlook for the world’s largest economy improves.

Indeed, Consumer Credit is expected to expand another $16B in March amid the resilience in private consumption, and the pickup in economic activity should increase the appeal of the USD as it limits the Fed’s scope to expand the balance sheet further.

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	IBD/TIPP Economic Optimism (MAY)	47.3	46.2
USD	19:00	15:00	Consumer Credit (MAR)	$16.000B	$18.139B
GBP	23:01	19:01	BRC Sales Like-For-Like YoY (APR)	1.9%	1.9%

--- 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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