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Euro To Weaken Further On Growth Concerns, EU Summit In Focus

By , Currency Analyst
29 March 2012 13:55 GMT

Talking Points

  • Euro: Portugal Sees Larger Contraction In 2012, EU Summit In Focus
  • British Pound: U.K. Data Disappoints, Sideways Price Action Ahead
  • U.S. Dollar: Upward Trend To Gather Pace, Fed Rhetoric On Tap

Euro: Portugal Sees Larger Contraction In 2012, EU Summit In Focus

The EURUSDextended the decline from earlier this week as the Organization for Economic Cooperation and Development talked up the risks surrounding the euro-area, and the exchange rate may weaken further over the remainder of the week as the fundamental outlook for the region turns increasingly bleak. Indeed, the OECD argued that the ‘firewall still needs to be further strengthened’ as the situation in Europe ‘remains fragile,’ and went onto say that the accommodative policy stance held by the European Central Bank ‘will be warranted for a considerable time to come’ as the region faces a risk for a prolonged recession.

At the same time, the Bank of Portugal warned of a larger contraction in 2012 as central bank officials expect to see a 3.4% decline in the growth rate, and the weakening outlook for the euro-area should continue to drive the exchange rate lower as European policy makers struggle to stem the risks surrounding the region. As the EU Summit comes into focus, there’s speculation that the group will expand the scope of the bailout fund to a whopping EUR 940B to stem the risk for contagion, but the developments coming out of the meeting may fail to prop up the euro should policy makers struggle to meet on common ground. As the EURUSD carves out a lower top going into April, we should see the exchange rate continue to give back the advance from earlier this month, and we may see the pair fall back towards 1.3000 in the days ahead as the outlook for the region deteriorates.

British Pound: U.K. Data Disappoints, Sideways Price Action Ahead

The British Pound pared the overnight advance to 1.5933 amid the slew of negative developments coming out of the U.K., and the GBPUSD may continue to give back the advance from earlier this month as market participants maintain bets for more quantitative easing. However, as the GBPUSD maintains the range carried over from the previous month, we should see 1.5600 provide near-term support, and the pair may continue to track sideways in April as market participants weigh the outlook for monetary policy. Although the Bank of England expects to see a stronger recovery in 2012, the slew of dismal data certainly points to a protracted recovery, and the Monetary Policy Committee may keep the door open to expand the Asset Purchase Facility beyond the GBP 325B target in an effort to balance the risks surrounding the region.

U.S. Dollar: Upward Trend To Gather Pace, Fed Rhetoric On Tap

The greenback regained its footing coming into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)bouncing back from an overnight low of 9,941, and the reserve currency may push higher going into April as it maintains the upward trend from earlier this year. With Fed officials scheduled to speak later today, the central bank rhetoric is likely to heavily influence the dollar, and less dovish comments from Mr. Dennis Lockhart and Mr. Charles Plosser should increase the appeal of the USD as market participants scale back expectations for more 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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FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:00

11:00

Kansas City Fed Manufacturing Activity Index (MAR)

13

USD

16:15

12:15

Fed's Dennis Lockhart Speaks on Global Economy

USD

16:45

12:45

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

USD

17:00

13:00

Fed's Charles Plosser Speaks on U.S. Economy

CAD

20:00

16:00

Canadian Finance Minister Jim Flaherty Presents Budget

NZD

21:45

17:45

Building Permits (MoM) (FEB)

0.0%

8.3%

USD

22:45

18:45

Fed's Jeffrey Lacker Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

JPY

23:50

Retail Trade s.a. (MoM) (FEB)

0.0%

2.0%

Advances for the third consecutive month.

JPY

23:50

Retail Trade (YoY) (FEB)

1.4%

3.5%

JPY

23:50

Large Retailers' Sales (FEB)

-0.3%

0.2%

NZD

0:00

NBNZ Activity Outlook(MAR)

--

38.8

Highest since August.

NZD

0:00

NBNZ Business Confidence (MAR)

--

33.8

AUD

0:30

Job Vacancies(FEB)

--

0.7%

Rises for the first time since August 2011.

EUR

7:55

German Unemployment Change (MAR)

-10K

-18K

Declines for the fifth month.

EUR

7:55

German Unemployment Rate s.a. (MAR)

6.8%

6.7%

GBP

8:30

Mortgage Approvals (FEB)

57.2K

49.0K

Slowest pace of growth since June.

GBP

8:30

Net Consumer Credit (FEB)

0.2B

0.4B

GBP

8:30

Net Lending Sec. on Dwellings (FEB)

1.4B

1.2B

GBP

8:30

M4 Money Supply (MoM) (FEB)

--

-1.9%

Contracts for seven straight months.

GBP

8:30

M4 Money Supply (YoY) (FEB)

--

-3.4%

GBP

8:30

M4 Ex IOFCs 3M (Annualised) (FEB)

--

2.5%

GBP

8:30

Index of Services (MoM)(JAN)

0.2%

0.2%

Rises for the third month.

GBP

8:30

Index of Services (3Mo3M) (JAN)

0.3%

0.3%

EUR

9:00

Euro-Zone Economic Confidence (MAR)

94.5

94.4

Weakens for the first time since December.

EUR

9:00

Euro-Zone Business Climate Indicator (MAR)

-0.16

-0.30

EUR

9:00

Euro-Zone Consumer Confidence (MAR F)

-19.0

-19.1

EUR

9:00

Euro-Zone Industrial Confidence (MAR)

-5.8

-7.2

EUR

9:00

Euro-Zone Services Confidence (MAR)

-0.8

-0.3

CAD

12:30

Industrial Product Price (MoM) (FEB)

0.5%

0.2%

Easing price pressures dampens the scope for a rate hike.

CAD

12:30

Raw Materials Price Index (MoM) (FEB)

0.5%

-0.5%

USD

12:30

Gross Domestic Product (Annualized) (4Q T)

3.0%

3.0%

Fastest pace of growth since 2Q 2010.

USD

12:30

Personal Consumption (4Q T)

2.1%

2.1%

USD

12:30

Core Personal Consumption Expenditure (QoQ) (4Q T)

1.3%

1.3%

USD

12:30

Gross Domestic Product Price Index (4Q T)

0.9%

0.9%

USD

12:30

Initial Jobless Claims (MAR 24)

350K

359K

Lowest since April 2008.

USD

12:30

Continuing Claims (MAR 17)

3365K

3340K

Lowest since August 2008.

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29 March 2012 13:55 GMT