Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

Forex: Euro Extends Decline as EU Holds Cautious Tone, U.S. Dollar Benefits From Flight to Safety

By , Currency Analyst
29 November 2010 12:30 GMT

Talking Points

  • Japanese Yen: Mixed Across the Board
  • British Pound: U.K. Raises 2010 GDP, Cuts 2011 Growth Forecast
  • Euro: EU Maintains Growth Projection For 2010, 2011
  • U.S. Dollar: Dallas Fed Manufacturing on Tap

The U.S. dollar advanced against its major counterparts during the overnight session, and the near-term rally in the greenback may pick up pace going into the North American trade as fears surrounding the European debt crisis continue to weigh on market sentiment. The EUR/USD tumbled to a low of 1.3136 as the European Union held a cautious outlook for the region and expects the austerity measures to bear down on the economic recovery in the following year. Although, the group maintained its growth forecast for the euro-area as it sees GDP expanding 1.7% this year and 1.5% in 2011, but went onto say that the fundamental outlook remains clouded with high uncertainty as the governments operating under the fixed-exchange rate system struggle to manage their public finances.

As a result, EU Economic and Monetary Affairs Commissioner Olli Rehn said Portugal and Italy may have to take additional steps to meet their fiscal targets as their budget-cutting proposals remain “very ambitious,’ but said that the risks to the economic outlook are broadly balanced while speaking at a news conference in Brussels. The bearish sentiment underlying the single-currency may intensify going into December as European policy makers struggle to restore investor confidence, and the ongoing turmoil in the financial markets could lead the European Central Bank to keep its exit strategy on hold throughout the coming months as it aims to balance the risks for the region. As the exchange rate falls back towards the 38.2%% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100-20, the euro-dollar may continue to retrace the advance from December, but the pair may consolidate in the days ahead as price action holds above the 200-Day SMA at 1.3130.

The British Pound fell back from a high of 1.5648 as investors scaled back their appetite for risk, and the flight to safety may continue to drag on the exchange rate as risk trends dictate price action in the currency market. As the GBP/USD breaks out of the upward trend from May, the pound-dollar may trend lower in the days ahead as it searches for support, but the pair could consolidate in the days as price action holds above the April highs around 1.5500. Meanwhile, the U.K. Office for Budget Responsibility sees GDP expanding 1.8% this year versus an initial forecast for 1.6% rise in GDP, while the group expects the growth rate to rise 2.1% in 2011 amid earlier projections for a 2.3% expansion next year. As policy makers in the U.K. see a risk for a slower recovery in the following year, the Bank of England may look to maintain the expansion in monetary policy throughout the beginning of 2011, but the stickiness in price growth could spur a growing split within the MPC as the central bank expects inflation to hold above target next year. As we head into December, speculation surrounding the outlook for future policy should play an increased role in driving price action for the GBP/USD, and the pair may trend sideways over the coming weeks as we expect to see another three-way split at the December 9 interest rate decision.

The greenback rallied against most of its currency counterparts, with the USD/JPY advancing to a high of 84.25, and the dollar may appreciate further as equity futures foreshadow a lower open for the U.S. market. As the economic docket remains fairly light for Monday, we should see risk sentiment continue to dictate price action for the major currencies, but there could be a small reaction to the Dallas Fed Manufacturing Activity index due out at 15:30 GMT as investors weigh the outlook for future growth. The gauge for manufacturing is expected to increase to 4.5 in November from 2.6 in the previous month, which would be the highest reading since April, and the data could spur a shift in market sentiment as the data encourages an improved outlook for the world’s largest economy.

Will the EUR/USD Retrace The Advance From September As European Debt Woes Intensify? Join us in the Forum

Related Articles: Forex Weekly Trading Forecast - 11.29.10

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

FX Upcoming

Currency

GMT

EST

Release

Expected

Prior

CAD

13:30

08:30

Current Account (BoP) (CAD) (3Q)

-15.2B

-11.0B

CAD

13:30

08:30

Industrial Prodcut Price (MoM) (OCT)

0.2%

0.2%

CAD

13:30

08:30

Raw Materials Price Index (MoM) (OCT)

08%

-0.4%

USD

15:30

10:30

Dallas Fed Manufacturing Activity (NOV)

3.0

2.6

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:45

Balance (YTD) (NZD) (OCT)

979.5M

1176.0M

Hits multi-year high

NZD

21:45

Trade Balance (NZD) (OCT)

-400M

-319M

4th straight deficit

NZD

21:45

Exports (NZD) (OCT)

3.31B

3.68B

Best since June

NZD

21:45

Imports (NZD) (OCT)

3.78B

4.00B

Best in 2010

JPY

23:50

Large Retailers Sales (OCT)

0.1%

0.4%

1st expansion after 30 straight contractions

JPY

23:50

Retail Trade (MoM) (OCT)

-0.7%

-1.9%

Eases mildly after steep contraction in Sept.

JPY

23:50

Retail Trade (YoY) (OCT)

0.7%

-0.2%

Continues slowing trend by turning negative

AUD

00:00

HIA New Home Sales (MoM) (OCT)

--

2.4%

1st expansion after 5 straight contractions

GBP

00:01

Hometrack Housing Survey (MoM) (NOV)

--

-0.8%

5th straight contraction

GBP

00:01

Hometrack Housing Survey (YoY) (NOV)

--

-1.1%

2nd straight contractions

AUD

00:30

Company Operating Profit (QoQ) (3Q)

4.0%

-1.5%

1st contraction since Q2 ‘09

AUD

00:30

Inventories (3Q)

0.4%

-0.8%

2nd straight contraction

NZD

02:00

NBNZ Activity Outlook (NOV)

--

35.3

Highest since June

NZD

02:00

NBNZ Business Confidence (NOV)

--

33.2

JPY

04:00

Small Business Confidence (NOV)

--

45.8

Lowest since March

EUR

09:00

Italian PPI (MoM) (OCT)

0.2%

-0.2%

1st contraction in 2010

EUR

09:00

Italian PPI (YoY) (OCT)

4.2%

4.0%

Slips back from fastest pace in 2010

GBP

09:30

Mortgage Approvals (OCT)

47.0K

47.2K

6th straight slowdown

GBP

09:30

Net Consumer Credit (OCT)

0.2B

0.3B

Highest since May

GBP

09:30

Net Lending Sec. on Dwellings (OCT)

0.5B

1.0B

Climbs after sharp dip in Sept.

GBP

09:30

M4 Ex. OFC’s 3M Annualised (OCT)

--

2.9%

Fastest since May

GBP

09:30

M4 Money Supply (MoM) (OCT)

--

0.7%

4th expansion in 2010

GBP

09:30

M4 Money Supply (YoY) (OCT)

--

-0.7%

1st contraction in 2010

EUR

10:00

Euro-zone Business Climate Indicator (NOV)

1.05

0.96

Slips back after posting 2010 high in Oct.

EUR

10:00

Euro-zone Consumer Confidence (NOV)

-10

-9.4

Highest in 2010

EUR

10:00

Euro-zone Industrial Confidence (NOV)

2

1

2nd straight expansion after 30 consecutive contractions

EUR

10:00

Euro-zone Economic Confidence (NOV)

105.0

105.3

Hits 2010 high

EUR

10:00

Euro-zone Services Confidence (NOV)

9

10

Highest since Feb ‘08

EUR

10:00

Italian Hourly Wages (MoM) (OCT)

0.2%

0.0%

3rd flat reading in 2010

EUR

10:00

Italian Hourly Wages (YoY) (OCT)

2.2%

1.5%

Slowest expansion on record

provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from

29 November 2010 12:30 GMT