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Euro At Risk Of Major Decline, Sterling Propped Up By BoE

By , Currency Analyst
15 February 2012 14:45 GMT

Talking Points

  • Euro: EU Looks To Delay Greek Bailout Package, Watching The 50-Day SMA
  • British Pound: U.K. Labor Market Weakens Further, BoE Softens Dovish Tone
  • U.S. Dollar: Regains Footing On Risk Aversion, FOMC Minutes In Focus

Euro: EU Looks To Delay Greek Bailout Package, Watching The 50-Day SMA

The Euro fell to a fresh weekly low of 1.3066 on rumors that European policy makers may look to delay all or parts of the EUR 130B bailout package for Greece, and the heightening risk of a Greek default is likely to dampen the appeal of the single currency as investor confidence remains frail. Once again, German Finance Minister Wolfgang talked down the risk for contagion, stating that the region is better prepared should the EU fail to rescue Greece, but pledged ‘to do everything’ to assist Greece as the debt crisis continues to weigh on the fundamental outlook for the euro-area.

However, as the EU attempts to buy more time, currency traders are likely to turn increasingly bearish against the single currency, and we expect to see the EUR/USD weaken further over the remainder of the week as it struggles to hold above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100. As the euro-dollar clears the 10 (1.3181) and 20 (1.3128) day moving averages, we are now looking for a break and close below the 50-Day SMA (1.3034) to support our bearish forecast for the EUR/USD, and the exchange rate may ultimately come up against the 23.6% Fib around 1.2630-50 as the fundamental outlook for the region turns increasingly bleak.

British Pound: U.K. Labor Market Weakens Further, BoE Softens Dovish Tone

The British Pound came under pressure on Wednesday as the larger-than-expected rise in U.K. jobless claims dampened the outlook for future growth, but it seems as though the Bank of England is a little more upbeat on the economy as policy makers expect to see a gradual recovery in 2012. Although the BoE continued to highlight the risk of undershooting the 2% target for price growth, the central bank said the risk for inflation is ‘broadly balanced,’ but went onto say that the growth is likely to remain weak over the near-term as the European debt crisis continues to drag on the U.K. economy. Nevertheless, BoE Governor Mervyn King noted that the economy is certainly ‘moving in the right direction’ as the outlook for growth and inflation improves, and we may see the central bank head continue to soften his dovish tone for monetary policy as economic activity gradually gathers pace. As the GBP/USD continues to hold above 1.5600, which lines up with the 50-Day SMA, we may see the exchange rate consolidate over the remainder of the week, and the pound-dollar may track sideways over the near-term as market participants weigh the fundamental outlook for the U.K.

U.S. Dollar: Regains Footing On Risk Aversion, FOMC Minutes In Focus

The greenback bounced back coming into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) paring the overnight decline to 9,792, and the reserve currency looks poised to appreciate further as the shift away from risk-taking behavior gathers pace. As the U.S. equity market pushes into the red, it looks as though risk aversion will keep the USD afloat, but the FOMC Minutes due out later today could dampen the appeal of the greenback should the central bank talk up speculation for additional monetary support. However, as economic activity gathers pace, the more robust recovery may dampen the Fed’s scope to push through another large-scale asset purchase program, and we may see the committee soften its dovish tone for monetary policy as the fundamental outlook for the world’s largest economy improves.

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:00

10:00

NAHB Housing Market Index (FEB)

26.00

25.00

USD

15:30

10:30

DOE U.S. Crude Oil Inventories (FEB 10

304K

USD

15:30

10:30

DOE U.S. Distillate Inventory (FEB 10

1174K

USD

15:30

10:30

DOE U.S. Gasoline Inventories (FEB 10

1629K

USD

17:15

12:15

Fed's Richard Fisher Speaks on U.S. Economy

--

--

USD

19:00

14:00

FOMC Releases Meeting Minutes

--

--

Currency

GMT

Release

Expected

Actual

Comments

AUD

23:30

Westpac Consumer Confidence (FEB)

--

4.2%

Rises for the second month.

AUD

23:30

Westpac Consumer Confidence Index (FEB)

--

101.1

AUD

00:30

New Motor Vehicle Sales (MoM) (JAN)

--

1.3%

Rises for the first time since October.

AUD

00:30

New Motor Vehicle Sales (YoY) (JAN)

--

2.7%

NZD

02:00

Non Resident Bond Holdings (JAN)

--

59.3%

Bounces back from a record-low.

JPY

06:00

Machine Tool Orders (YoY) (JAN F)

--

-6.9%

Contracts for the first time in a year.

EUR

06:30

French Gross Domestic Product (QoQ) (4Q P)

-0.2%

0.2%

Expands for the second straight quarter.

EUR

06:30

French Gross Domestic Product (YoY) (4Q P)

1.1%

1.4%

EUR

07:00

German GDP n.s.a. (YoY) (4Q A)

1.8%

1.5%

Contracts for the first time since the first quarter of 2009.

EUR

07:00

German GDP s.a. (QoQ) (4Q A)

-0.3%

-0.2%

EUR

07:00

German GDP w.d.a. (YoY) (4Q A)

1.9%

2.0%

EUR

09:00

Italian GDP s.a. and w.d.a. (QoQ) (4Q P)

-0.6%

-0.7%

Growth weakens for the second quarter.

EUR

09:00

Italian GDP s.a. and w.d.a. (YoY) (4Q P)

-0.3%

-0.5%

EUR

09:30

Italian General Government Debt (DEC)

--

1897.9B

Narrows for second month.

GBP

09:30

Claimant Count Rate (JAN)

5.0%

5.0%

Unemployment claims rose for 11 straight months.

GBP

09:30

Jobless Claims Change (JAN)

3.0K

6.9K

GBP

09:30

Average Weekly Earnings (3M/YoY) (DEC)

1.9%

2.0%

GBP

09:30

Weekly Earnings exBonus (3M/YoY) (DEC)

1.9%

2.0%

GBP

09:30

ILO Unemployment Rate (3M) (DEC)

8.4%

8.4%

EUR

10:00

Euro-Zone GDP s.a. (QoQ) (4Q A)

-0.4%

-0.3%

Contracts for the first time since 2Q 2009.

EUR

10:00

Euro-Zone GDP s.a. (YoY) (4Q A)

0.7%

0.7%

CHF

10:00

ZEW Survey (Expectations) (FEB)

--

-21.2

Highest since May.

EUR

10:00

Euro-Zone Trade Balance s.a. (euros) (DEC)

4.5B

7.5B

Largest surplus since May 2004.

EUR

10:00

Euro-Zone Trade Balance (euros) (DEC)

3.5B

9.7B

USD

12:00

MBA Mortgage Applications (FEB 10)

--

-1.0%

Resumes decline from January.

USD

13:30

Empire Manufacturing (FEB)

15.00

19.53

Highest since June 2010.

USD

14:00

Total Net TIC Flows (DEC)

--

$87.1B

Smallest advance since October.

USD

14:00

Net Long-term TIC Flows (DEC)

$45.0B

$17.9B

USD

14:15

Industrial Production (JAN)

0.7%

0.0%

Fails to grow for the first time since Novemeber.

USD

14:15

Capacity Utilization (JAN)

78.0%

78.5%

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15 February 2012 14:45 GMT