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Euro Rattled By Fears Of Greek Default, Sterling Searches For Support

By , Currency Analyst
06 March 2012 14:40 GMT

Talking Points

  • Euro: Greece Default To Exceed EUR 1T, Troika Prepares For Involuntary Restructuring
  • British Pound: Searches For Support After Carving Top Below 1.6000
  • U.S. Dollar: Index Advances To Fresh Monthly High As Flight To Safety Picks Up

Euro: Greece Default To Exceed EUR 1T, Troika Prepares For Involuntary Restructuring

The Euro tumbled to an overnight low of 1.3112 as the Institute of International Finance, the group representing Greek bondholders, warned that a disorderly Greek default could cost well over EUR 1T for the region. The group warned that such an event would require ‘substantial support to Spain and Italy to stem contagion there,’ and we may see the single currency face additional headwinds in the days ahead should Greece struggle to strike a deal ahead of the deadline on Thursday.

At the same time, a report from Finance Times Deutschland said the Troika – the European Union, European Central Bank and the International Monetary Fund – is preparing for an involuntary debt restructuring, and we will be closely watching the headlines coming out of the euro-area as the Greek PSI talks take center stage. As the ECB is schedule to announce their interest rate decision later this week, we may see central bank President Mario Draghi try to talk down the risks surrounding the region, but the Governing Council may look to expand monetary policy further in the coming months in order to dampen the risks surrounding ailing economy. As the EURUSD comes up against the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100, we may see the key figure provide short-term support, but the reversal in the exchange rate may gather pace in the coming days as the pair breaks out of the upward trending channel from earlier this year.

British Pound: Searches For Support After Carving Top Below 1.6000

The British Pound came up against the 38.2% Fibonacci retracement from the 2009 low to high around 1.5730-50 as it searches for support, and we may see the GBPUSD track sideways in the days ahead as market participants weigh the fundamental outlook for the U.K. Indeed, we’re expecting to see positive developments coming out of the British economy later this week, and a more robust recovery could push the exchange rate back towards 1.6000 as it dampens speculation for additional monetary support. However, the downward trend in the relative strength index instills a bearish outlook for the GBPUSD, and the reversal from 1.5991 may gather pace over the next 24-hours of trading as the shift away from risk-taking behavior gathers pace. In turn, we may see the pair threaten the range carried over from the previous month, and the exchange rate may make another run at the 50-Day SMA (1.5661) as it appears to have carved out a lower high just below 1.60000.

U.S. Dollar: Index Advances To Fresh Monthly High As Flight To Safety Picks Up

The greenback continued to gain ground against its major counterparts, with the Dow Jones- FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a fresh monthly 9,933, and the reserve currency may continue to gain ground during the North American trade as market participants scale back their appetite for risk. As the U.S. equity market opens sharply lower, the shift away from risk-taking behavior is likely to fuel demands for the greenback, and the index may continue to retrace the decline from earlier this year as trader sentiment falters. Nevertheless, market volatility may thin going into the end of the week as the highly anticipated U.S. Non-Farm Payrolls report comes into focus, but the more robust recovery in the labor market may send the dollar higher as it dampens speculation for another round of quantitative easing.

--- 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

CAD

15:00

10:00

Ivey Purchasing Managers Index s.a. (FEB)

62.0

64.1

Currency

GMT

Release

Expected

Actual

Comments

GBP

0:01

BRC Sales Like-For-Like (YoY) (FEB)

--

-0.3%

Weakens for the second month.

AUD

0:30

Net Exports of GDP (4Q)

0.0%

0.3%

Rises for the first time since 2Q 2010.

AUD

0:30

Current Account Balance (Australian Dollar) (4Q)

-8050M

-8374M

Largest deficit since 1Q 2011.

JPY

1:30

Labor Cash Earnings (YoY) (JAN)

-0.3%

0.0%

Holds flat for the first time in three-months.

AUD

3:30

Reserve Bank of Australia Interest Rate Decision

4.25%

4.25%

Keeps door open for rate cut amid slowing inflation.

EUR

10:00

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

-0.3%

-0.3%

Contracts for the first time since 2Q 2009, led by a decline in investments and exports.

EUR

10:00

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

0.7%

0.7%

EUR

10:00

Euro-Zone Household Consumption (QoQ) (4Q P)

-0.2%

-0.4%

EUR

10:00

Euro-Zone Gross Fixed Capital (QoQ) (4Q P)

-0.4%

-0.7%

EUR

10:00

Euro-Zone Government Expenditure (QoQ) (4Q P)

0.0%

-0.2%

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06 March 2012 14:40 GMT