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Forex: Euro Pull Back To Accelerate, Sterling Outlook Hinges On BoE

Forex: Euro Pull Back To Accelerate, Sterling Outlook Hinges On BoE

2011-09-16 13:10:00
David Song, Currency Strategist
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Talking Points

  • Euro: EU Struggles To Shore Up Investor Confidence, 50.0% Fib Insight
  • British Pound: BoE Bean Talks Down Speculation For More QE, All Eyes On Minutes
  • U.S. Dollar: Regains Footing Following Shift in Risk, U. of Michigan On Tap

Euro: EU Struggles To Shore Up Investor Confidence, 50.0% Fib Insight

The EU’s attempt to calm market jitters appears to have been too little too late, and the euro may continue to give back the advance from earlier this week as the heightening risk for contagion continues to bear down on market sentiment. Indeed, Euro Group President Jean-Claude Juncker said the ratification of the improved European Financial Stability Facility is well on track while speaking at the two-day meeting in Poland, and went onto say that the group made progress on the collateral issue with Greece. However, the lack of urgency within the group continues to dampen the outlook for the euro-area, and we are likely to see an increased reliance on the European Central Bank as the EU struggles to meet on common ground.

As the heightening risk for contagion bears down on investor confidence, the rebound in the EUR/USD appears to have come to a halt, and the pair may continue to retrace the advance from 1.3496 as the fundamental outlook for Europe deteriorates. As price action fails to hold above the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3890-1.3900, the pull back from 1.3936 may gather pace throughout the North American trade, and the exchange rate may fall back towards the 50.0% Fib around 1.3500 to test for near-term support.

British Pound: BoE Bean Talks Down Speculation For More QE, All Eyes On Minutes

The British Pound pared the overnight advance to 1.5830 and the sterling may hold steady throughout the remainder of the day as it trades within the previous day’s range. As the Bank of England is scheduled to release the policy meeting minutes next week, the GBP/USD may continue to trend sideways in the days ahead, and the statement is likely to heavily influence the future price action of the British Pound as market participants weigh the outlook for monetary policy. BoE board member Charles Bean held an improved outlook for the region as he expects the economic recovery to gather pace in the following year, and voiced his opposition to increase the asset purchase program beyond the GBP 200B target during an interview with the Sun newspaper. However, we may see the central bank strike a highly dovish tone next week as policy makers continue to see a risk of undershooting the 2% target for inflation, and the minutes may show a growing rift within the MPC as the fundamental outlook for the U.K. remains clouded with high uncertainty.

U.S. Dollar: Regains Footing Following Shift in Risk, U. of Michigan On Tap

U.S. dollar price action was largely mixed during the overnight trade, but it seems as though the reserve currency is regaining its footing as market participants scale back their appetite for risk. As equity futures foreshadow a lower open for the U.S. market, the shift in risk sentiment should help to prop up the greenback, but a rebound in household confidence may prop up market confidence as the outlook for future growth improves. The U. of Michigan confidence survey is expected to increase to 56.9 in September from 55.7 in the previous month, but we may see a fairly muted reaction to the release as market participant typically thins ahead of the weekend.

Will the EUR/USD Break Below the 50.0% Fib? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:00

9:00

Net Long-term TIC Flows (JUL)

$22.5B

$3.7B

USD

13:00

9:00

Total Net TIC Flows (JUL)

--

-$29.5B

USD

13:55

9:55

U. of Michigan Confidence (SEP P)

56.9

55.7

Currency

GMT

Release

Expected

Actual

Comments

NZD

1:00

ANZ Consumer Confidence Index (SEP)

--

112.6

Declines for the fourth time this year.

NZD

1:00

ANZ Consumer Confidence (MoM) (SEP)

--

-0.6%

EUR

6:01

EU 25 New Car Registrations (AUG)

--

7.7%

Rises for the first time since May.

EUR

8:00

Euro-Zone Current Account s.a. (euros) (JUL)

--

-12.9B

Biggest deficit since January 2009.

EUR

8:00

Euro-Zone Current Account n.s.a. (euros) (JUL)

--

-3.2B

EUR

8:00

Italian Trade Balance (Total) (euros) (JUL)

--

1438M

First surplus since July 2010.

EUR

8:00

Italian Trade Balance EU (euros) (JUL)

--

1773M

EUR

9:00

Euro-Zone Labor Costs (YoY) (2Q)

--

3.6%

Highest since 4Q 2008.

EUR

9:00

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

--

-2.5B

Biggest decline since April.

EUR

9:00

Euro-Zone Trade Balance (euros) (JUL)

2.0B

4.3B

CAD

12:30

International Securities Transactions (Canadian dollar) (JUL)

2.00B

11.78B

Hits a two-month high.

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