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Euro Heavy As Spain Bond Auction Disappoints, OECD Sees More Easing

By , Currency Analyst
27 March 2012 13:00 GMT

Talking Points

  • Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing
  • British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead
  • U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap

Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing

The Euro fell back from an overnight high of 1.3384 as Spain sold EUR 2.58B in three and six-month bills versus the EUR 3.00B target, and it seems as though the second Long Term Refinancing Operation is not having the desired effect as commercial banks across the euro-area continue to horde cash. In light of the recent developments, the Organization for Economic Cooperation and Development argued that the European Central Bank’s non-standard measures ‘may need to be widened to support the monetary transmission mechanism and maintain price stability,’ and the group went onto say that ‘the lack of effective policy action would open the way to a severe recession’ as the region struggles to stem the risk for contagion.

In response, ECB board member Jozef Makuch talked down speculation for more central bank loans and said that ‘the central bank considers as sufficient what it has done so far,’ but the Governing Council may have little choice but to expand its balance sheet further as the governments operating under the single currency become increasingly reliant on monetary support. Although the recent run up in the EURUSD negated our call for a head-and-shoulders top, it looks as though we’re getting a short-term correction in the euro-dollar following the failed run at 1.3400, and we may see the exchange rate track lower over the remainder of the week as the pair appears to be carving out a lower high going into mark. In turn, we may see the EURUSD revert back to the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100, but the weakening outlook for the euro-area may ultimately expose the 23.6% Fib around 1.2630-50 as European policy makers struggle to restore investor confidence.

British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead

The British Pound marked another failed run at 1.6000, with the GBPUSD stalling at an overnight high of 1.5997, and the GBPUSD looks primed for a short-term correction as it maintains the range carried over from the previous month. Meanwhile, Bank of England board member David Miles laid out a tentative exit strategy as he sees the Monetary Policy Committee lifting the benchmark interest rate off the record-low before winding down the balance sheet, but we may see Mr. Miles continue to push for more quantitative easing as he expects the ongoing slack within the real economy to dampen the outlook for inflation. Nevertheless, it seems as though the BoE will endorse a wait-and-see approach throughout the first-half of the year, and we may see the GBPUSD continue to face range-bound price action as market participants weigh the outlook for monetary policy.

U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap

The greenback regained its footing on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a high of 9,944, and the reserve currency may continue to gain ground during the North American trade should Fed officials talk down speculation for additional monetary support. As the central bank takes note of the more robust recovery, we should see Fed officials strike an improved outlook for the world’, but the economic docket may dampen the appeal of the USD as we’re expecting to see household sentiment fall back from a one-year high in March. In turn, a dismal confidence report could spark a bearish reaction in the dollar, and we may see the USDOLLAR threaten the upward trend carried over from the previous month as market participants maintain bets for more QE3.

--- 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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FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Fed's William Dudley Testifies on Euro Crisis

USD

14:00

10:00

Fed's Steven Kamin Testifies on Euro Crisis

USD

14:00

10:00

Consumer Confidence (MAR)

70.0

70.8

USD

14:00

10:00

Richmond Fed Manufacturing Index (MAR)

18

20

GBP

14:30

10:30

BoE's Fisher, Broadbent Speaks on U.K. Economy

GBP

16:30

12:30

BoE's Spencer Dale Speaks on U.K. Economy

USD

16:35

12:35

Fed's Eric Rosengren Speaks on U.S. Economy

USD

16:45

12:45

Fed's Ben Bernanke Gives Lecture at George Washington U. (3 of 4)

GBP

17:00

13:00

BoE's Adam Posen Speaks on U.K. Economy

USD

17:20

13:20

Fed's Richard Fisher Speaks Monetary Policy

USD

19:45

15:45

Fed's Elizabeth Duke Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

JPY

23:50

Corporate Service Price (YoY) (FEB)

-0.4%

-0.6%

Largest decline since June.

CNY

1:30

Industrial Profits (YTD) (YoY) (FEB)

--

-5.2%

First decline since 2009.

JPY

5:00

Small Business Confidence (MAR)

--

48.7

Highest since March.

EUR

6:00

German Import Price Index (MoM) (FEB)

0.9%

1.0%

Slowest pace of growth since February 2010.

EUR

6:00

German Import Price Index (YoY) (FEB)

3.5%

3.5%

CHF

6:00

UBS Consumption Indicator (FEB)

--

0.87

Weakens for the second month.

EUR

7:00

German GfK Consumer Confidence Survey (APR)

6.1

5.9

Falls back from a yearly high.

GBP

10:00

CBI Reported Sales(MAR)

-5

0

Halts two months of negative readings,

USD

13:00

S&P/Case-Shiller Composite-20 s.a. (MoM) (JAN)

-0.30%

-0.04%

Smallest decline since July.

USD

13:00

S&P/Case-Shiller Composite-20 (YoY) (JAN)

-3.8%

-3.78%

USD

13:00

S&P/Case-Shiller Home Price Index (JAN)

135.80

135.46

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27 March 2012 13:00 GMT