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Euro Poised to Test Yearly High, British Pound Breaks Out of Range to Hit 3-Month High

Monday, 09 November 2009 11:43 GMT | Written by David Song

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Feb, 09 British Pound Gives Back, Euro Advances on Hopes for Greece Bailout
Feb, 08 Euro Rebounds Despite Drop in Sentix Survey, British Pound Extends Decline
Feb, 05 U.S. Dollar Extends Advance Ahead of Non-Farm Payrolls, Japanese Yen Gives Back
Feb, 04 British Pound Pares Decline as BoE Suspends Asset Purchases, Euro Holds Rate at Record Low
Feb, 03 British Pound Maintains Broad Range, Euro Advances Despite Dismal Sales Report
Feb, 02 Euro Tips Higher as Economic Outlook Improves, British Pound Holds within Previous Day’s Range
Feb, 01 Euro Halts Decline, British Pound Slips to Fresh Yearly as Mortgage Approvals Decline
Jan, 29 Euro, British Pound Remain Little Changed Ahead of U.S. 4Q GDP
Jan, 28 Euro Extends Decline Despite Improved Confidence, British Pound Advances for Second Day
Jan, 27 Euro Holds Steady Ahead of FOMC Rate Decision, British Pound Advances as BoE Holds Hawkish Outlook
Jan, 26 British Pound Extends Decline as 4Q GDP Disappoints, Euro Halts Two-Day Rally
Jan, 25 Euro Advances for Second Day on Risk Appetite, British Pound Halts Three-Day Decline
Jan, 22 Pound Weighed By Disappointing Retail Sales, As Dollar, Yen Gain on Risk Aversion
Jan, 21 Euro Slips to Five-Month Low, British Pound Extends Decline as Budget Deficit Widens at Record Pace
Jan, 20 British Pound Halts Two-Day Rally Despite Drop in Unemployment, Euro Extends Decline on Risk Aversion
Jan, 19 Euro Extends Decline as Investor Confidence Falters, U.K. Inflation Jumps at Record Pace
Jan, 18 British Pound Continues to Retrace the Decline from December, Euro Remains Supported by 200-Day SMA
Jan, 15 Euro Extends Decline on Risk Aversion, British Pound Halts Five Day Rally
Jan, 14 Euro, British Pound Remain Relatively Flat Ahead of ECB Rate Decision and U.S. Retail Sales
Jan, 13 Euro Bounces Back, British Pound Breaks Out on BoE Comments

The euro surged higher on Monday and crossed above the 20-Day SMA (1.4880) to reach a high of 1.5012, and the single-currency looks poised to test the yearly high at 1.5064 as investors raise their appetite for risk.

Talking Points
•    Japanese Yen: USD/JPY Remains Weighed, Holds Below 90.00
•    Pound: Breaks Range to Hit 3-Month High
•    Euro: German Trade Surplus Widens, Industrial Outputs Jump
•    US Dollar: IMF Sees Further Weakness, Carry-Interest to Rise

Euro Poised to Test Yearly High, British Pound Breaks Out of Range to Hit 3-Month High

The euro surged higher on Monday and crossed above the 20-Day SMA (1.4880) to reach a high of 1.5012, and the single-currency looks poised to test the yearly high at 1.5064 as investors raise their appetite for risk. At the same time, investor confidence in Europe increased for the fourth consecutive month in November, with the Sentix index rising to -7.0 from -12.6 in the previous month, while the gauge for future expectations jumped to 12.0 from 5.8 in October to mark the highest reading since June 2007.

Moreover, the trade surplus for Germany widened to 10.6B in September from 8.1B amid expectations for a rise to 11.3B as imports surged 5.8% from the previous month, while exports advanced 3.8% after falling 2.8% in August, and the marked appreciation in the exchange rate may weigh on economic activity going forward as global trade conditions remain weak. Furthermore, industrial outputs in Europe’s largest economy increased 2.7% during the same period to top forecasts for a 1.0% rise, while the annualized rate slipped 12.9% from the previous year after tumbling 16.5% in the previous month, and businesses may continue to ramp up their rate of production over the coming months as policy makers anticipate the euro-region to return to growth going into the following year. Meanwhile, European Central Bank board member Lorenzo Bini Smaghi held a cautious outlook for global growth as he expects unemployment in the U.S. and Europe to increase throughout the first-half of 2010, and argued policy makers should continue to support economic activity going forward in order to encourage a sustainable recovery.

The British pound strengthened against the greenback for the fifth day and broke out of the October range to reach a three-month high of 1.6844, and the currency may continue to retrace the sell-off from August as market sentiment improves. As a result, we may see the GBP/USD attempt to test the yearly high at 1.7045 over the week as the economic docket is anticipated to reinforce an improved outlook for the U.K. however, as the relative strength index approaches overbought territory, we may see the currency pair hold a broad range throughout the month as investors weigh the outlook for future policy.

The greenback weakened across the board, with the dollar index slipping to 74.99 during the overnight session to mark the lowest level since October 21st, and the reserve-currency may face increased selling pressures going into the North American trade as equity futures foreshadow a higher open for the U.S. market. At the same time, the International Monetary Fund said the dollar remains “on the strong side” and expects the trade-currency to depreciate further over the coming months as it remain the most popular funding-currency, next to the Japanese yen, and the group projects the exchange rate to weaken further over the coming months as the Federal Reserve pledges to maintain borrowing costs at the record-low for “an extended period” of time.

Will The EUR/USD Maintain Its Rally? Join us in the Forurm

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Forex Weekly Trading Forecast - 11.09.09

To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com

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