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Euro Struggles As EU Summit Disappoints, Sterling Carving Higher Low?

By , Currency Analyst
24 May 2012 13:45 GMT

Talking Points

  • Euro: EU Summit Disappoints, ECB To Ease Policy Further
  • British Pound: RSI Dips Into Oversold, BoE Miles Highlights Above-Target Inflation
  • U.S. Dollar: Falls Back From Fresh 2012 High, Business Investments Falter

Euro: EU Summit Disappoints, ECB To Ease Policy Further

The EU Summit failed to prop up the Euro amid the ongoing rift within the group, and we may see European officials continue to act in their own interest as the anti-austerity movement gathers pace. As French President Francois Hollande and Italian Prime Minister Mario Monti press for increased integration, German Chancellor Angela Merkel may come under increased pressure to push through a euro-area bond, but we may see the EU use this opportunity to buy more time as the governments operating under the single currency look for additional monetary support.

As the EU struggles to meet on common ground, there’s growing speculation that the European Central Bank will carry its easing cycle into the second-half of the year, and we may see the Governing Council take a more aggressive approach in shoring up the economy as the threat of a Greek exit continues to materialize. Nevertheless, it seems as though the 1.2500 figure is providing psychological support as the EURUSD remains oversold, and we may see a short-term correction take shape in the coming days as the relative strength index bounces back from the lowest level since May 2010. However, we are looking to sell rallies in the EURUSD as the fundamental outlook for the region turns increasingly bleak, and we may see former support around the 1.30000 figure act as new resistance as we expect to see a lower high in the exchange rate.

British Pound: RSI Dips Into Oversold, BoE Miles Highlights Above-Target Inflation

The British Pound pared the overnight decline to 1.5638 even as the preliminary GDP report showed an even larger contraction in the first-quarter, and the sterling may continue to retrace the decline from earlier this month as the Bank of England sticks to its wait-and-see approach. BoE board member David Miles said the ‘exceptionally expansionary’ policy remains appropriate as the U.K. slips back into recession, but highlighted the risks of a prolonged period of above-target inflation as policy makers expect to see a more robust recovery later this year. In turn, it seems as though the Monetary Policy Committee will preserve its neutral policy stance over the medium-term, but there may be increased pressure to start normalizing monetary policy as the central banks’ credibility to preserve price stability comes under increased scrutiny. As the GBPUSD holds above the 1.5600 figure, the pair could be carving out a higher low ahead of June, but we will be keeping a close eye on the relative strength index as it dips into oversold territory.

U.S. Dollar: Falls Back From Fresh 2012 High, Business Investments Falter

The greenback is largely mixed on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) falling back from a fresh yearly high of 10,218, and the reserve currency may consolidate throughout the North American trade as the recovery in the world’s largest economy appears to be tapering off. Although demands for U.S. durable goods increased 0.2% in April, orders for non-defense capital goods excluding aircrafts, which acts as a proxy for future business investments, tumbled 1.9% amid forecasts for a 0.8% rise, and the ongoing slack in private sector activity may continue to fuel speculation for another large-scale asset purchase program as the Fed keeps the door open to expand monetary policy further. As the greenback remains overbought, it seems as though we will see a short-term correction going into the end of the week, but the headline-driven market may continue to prop up the reserve currency as it continues to benefit from safe-haven flows.

--- 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

14:30

10:30

Fed's William Dudley Speaks on U.S. Economy

USD

15:00

11:00

Kansas City Fed Manufacturing Activity Index (MAY)

3

EUR

16:20

12:20

ECB's Joerg Asmussen Speaks on the Debt Crisis

USD

17:00

13:00

Fed's William Dudley Speaks on U.S. Economy

USD

17:00

13:00

|| US Treasury to Sell $29 Bln 7yr Notes

Currency

GMT

Release

Expected

Actual

Comments

AUD

1:00

CBAHIA House Affordability (1Q)

--

61.8

Highest since 3Q 2009.

CNY

2:30

HSBC Flash Manufacturing Purchasing Manager Index

--

48.7

Contracts for the seventh month.

EUR

6:00

German GDP s.a. (QoQ) (1Q F)

0.5%

0.5%

Private investment contracts the most since 1Q 2009. Construction investment weakens the most since 4Q 2010.

EUR

6:00

German GDP w.d.a. (YoY) (1Q F)

1.2%

1.2%

EUR

6:00

German GDP n.s.a. (YoY) (1Q F)

1.7%

1.7%

EUR

6:00

German Private Consumption (1Q)

0.2%

0.4%

EUR

6:00

German Capital Investment (1Q)

-0.3%

-1.1%

EUR

6:00

German Domestic Demand (1Q)

0.0%

-0.3%

EUR

6:00

German Construction Investment (1Q)

-0.4%

-1.3%

EUR

6:00

German Government Spending (1Q)

0.3%

0.2%

EUR

6:00

German Exports (1Q)

0.9%

1.7%

EUR

6:00

German Imports (1Q)

0.3%

0.0%

CHF

6:00

Trade Balance (Swiss franc) (APR)

1.90B

1.33B

Smallest surplus since August 2011.

CHF

6:00

Exports (MoM) (APR)

0.2%

-0.9%

CHF

6:00

Imports (MoM) (APR)

--

2.6%

EUR

6:45

French Own-Company Production Outlook (MAY)

--

-4

Outlook lowest since January.

EUR

6:45

French Production Outlook Indicator (MAY)

--

-29

EUR

6:45

French Business Confidence Indicator (MAY)

94

93

EUR

7:00

French PMI Manufacturing (MAY P)

47.0

44.4

Services contract for second month.

EUR

7:00

French PMI Services (MAY P)

45.8

45.2

EUR

7:30

German PMI Manufacturing (MAY A)

47.0

45.0

Manufacturing weakens for third month.

EUR

7:30

German PMI Services (MAY A)

52.0

52.2

EUR

8:00

Euro-Zone PMI Manufacturing (MAY A)

46.0

45.0

Composite hits the lowest reading since June 2009.

EUR

8:00

Euro-Zone PMI Services (MAY A)

46.7

46.5

EUR

8:00

Euro-Zone PMI Composite (MAY A)

46.6

45.9

EUR

8:00

German IFO - Expectations (MAY)

102.0

100.9

Lowest reading since January.

EUR

8:00

German IFO - Business Climate (MAY)

109.4

106.9

EUR

8:00

German IFO - Current Assessment (MAY)

117.1

113.3

GBP

8:30

BBA Loans for House Purchase (APR)

32000

32438

Rises for the first time since January.

GBP

8:30

Gross Domestic Product (QoQ) (1Q P)

-0.2%

-0.3%

Contracts 0.3% for the second straight quarter.

GBP

8:30

Gross Domestic Product (YoY) (1Q P)

0.0%

-0.1%

GBP

8:30

Private Consumption (1Q P)

0.3%

0.1%

GBP

8:30

Gross Fixed Capital Formation (1Q P)

-0.5%

-0.3%

GBP

8:30

Government Spending (1Q P)

0.0%

1.6%

GBP

8:30

Exports (1Q P)

-0.3%

0.1%

GBP

8:30

Imports (1Q P)

0.1%

0.4%

GBP

8:30

Total Business Investment (QoQ) (1Q P)

-1.0%

3.6%

Biggest rise since 2Q 2011.

GBP

8:30

Total Business Investment (YoY) (1Q P)

9.2%

14.2%

GBP

8:30

Index of Services (MoM) (MAR)

0.3%

0.5%

Expands for the first time since December.

GBP

8:30

Index of Services (3Mo3M) (MAR)

0.2%

0.1%

USD

12:30

Durable Goods Orders (APR)

0.2%

0.2%

Rises for second time this year, future business investments weaken for second month.

USD

12:30

Durables ex Transportation (APR)

0.8%

-0.6%

USD

12:30

Non-Defense Capital Goods Orders ex Aircrafts (APR)

0.8%

-1.9%

USD

12:30

Non-Defense Capital Goods Shipments ex Aircrafts (APR)

-1.0%

-1.4%

USD

12:30

Initial Jobless Claims (MAY 19)

370K

370K

Holds at the lowest level since 2008.

USD

12:30

Continuing Claims (MAY 12)

3250K

3260K

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24 May 2012 13:45 GMT