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Forex: Euro Outlook Remains Bearish, Sterling To Face BoE Minutes

Forex: Euro Outlook Remains Bearish, Sterling To Face BoE Minutes

2011-10-18 13:25:00
David Song, Currency Strategist
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Talking Points

  • Euro: Moody’s - France’s AAA Credit Rating Under Pressure
  • British Pound: To Hold Steady Ahead Of BoE Minutes
  • U.S. Dollar: Rallies On Flight To Safety, Fed Chairman Bernanke On Tap

Euro: Moody’s - France’s AAA Credit Rating Under Pressure

The Euro slipped to an overnight low of 1.3656 on threats that region’s second-largest economy may lose its top credit rating, and the EUR/USD may continue to give back the rebound from 1.3145 as the flight to safety gathers pace. After firing warning shots against France, Moody’s Investor Services said that the European Central Bank has ‘very substantial’ capacity to shore up the banking system, and we may see the ECB take additional steps to shield the economy as the fundamental outlook for the region remains clouded with high uncertainty.

At the same time, European Union Economic and Monetary Affairs Commissioner OIli Rehn warned that Portugal may fall short of meeting its 2011 deficit target, and went onto say that the euro-area needs ‘stronger financial backstops’ as the group struggles to stem the risk for contagion. As heightening fears surrounding the sovereign debt crisis dampens the outlook for the single-currency, we should see the reversal from 1.3913 gather pace ahead of the EU Summit on tap for later this week, and the exchange rate looks poised to work its way back towards the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500 to test for near-term support.

British Pound: To Hold Steady Ahead Of BoE Minutes

The British Pound extend the decline from earlier this week even as the headline reading for U.K. inflation topped market expectations, and the GBP/USD may face additional headwinds over the next 24-hours of trading should the Bank of England keep the door open to expand monetary policy further. The BoE meeting minutes may instill a bearish outlook for the sterling as we expect the central bank to maintain a dovish tone for monetary policy, and the MPC may highlight an increased risk of undershooting the 2% target for inflation given the slowing recovery in the U.K. In turn, the BoE may look to carry its easing cycle into the following year, and the central bank may turn increasingly cautious towards the economy as the region faces a greater risk of a double-dip recession. As a result, the GBP/USD may continue to retrace the rebound from 1.5273, but the exchange rate may hold steady ahead of the policy statement as the pair bounces back from the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700.

U.S. Dollar: Rallies On Flight To Safety, Fed Chairman Bernanke On Tap

The U.S. dollar continued to gain ground on Tuesday and the greenback may continue to gain ground throughout the North American trade as the flight to safety gathered pace,. However, as equity futures foreshadow a mixed open for the U.S. market, a rebound in risk would dampen demands for the greenback, and the USD may consolidate during the early morning trade as Fed Chairman Ben Bernanke is scheduled to speak at 17:15 GMT. As the Dow-Jones U.S. Dollar index (Ticker: USDOLLAR) pares the overnight advance to 9,808, we may see the greenback consolidate for most of the day, and comments from the central bank head is likely to heavily influence the reserve currency as market participants weigh the outlook for monetary policy.

--- 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.

Will the EUR/USD Retrace The Advance From Earlier This Year? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:00

9:00

Net Long-Term TIC Flows (AUG)

--

$9.5B

USD

13:00

9:00

Total Net TIC Flows (AUG)

--

-$51.8B

USD

14:00

10:00

NAHB Housing Market Index (OCT)

15

14

USD

17:15

13:15

Fed Chairman Ben Bernanke Speaks on Central Banking

--

--

Currency

GMT

Release

Expected

Actual

Comments

CNY

2:00

Real Gross Domestic Product (QoQ) (3Q)

--

2.3%

Slowest pace of annualized growth since 3Q 2009.

CNY

2:00

Real Gross Domestic Product (YoY) (3Q)

9.3%

9.1%

CNY

2:00

Real Gross Domestic Product (YTD) (YoY) (3Q)

9.5%

9.4%

CNY

2:00

Industrial Production (YoY) (SEP)

13.4%

13.8%

Holds steady for second month.

CNY

2:00

Industrial Production (YTD) (YoY) (SEP)

14.1%

14.2%

CNY

2:00

Fixed Assets Investment ex Rural (YTD) (YoY) (SEP)

24.8%

24.9%

Lowest since February.

CNY

2:00

Retail Sales (YoY) (SEP)

17.0%

17.7%

Fastest pace of growth since June.

CNY

2:00

Retail Sales (YTD) (YoY) (SEP)

16.9%

17.0%

JPY

5:30

Tokyo Department Store Sales (YoY) (SEP)

--

-3.6%

Contracts for three straight months.

JPY

5:30

Nationwide Department Store Sales (YoY) (SEP)

--

-2.4%

JPY

6:00

Machine Tool Orders (YoY) (SEP F)

--

20.1%

Two-month high.

EUR

6:00

EU 25 New Car Registrations (SEP)

--

0.7%

Rises for second month.

GBP

8:30

Consumer Price Index (MoM) (SEP)

0.4%

0.6%

Fastest rate of inflation since recordkeeping began in 1997. Core CPI highest since May.

GBP

8:30

Consumer Price Index (YoY) (SEP)

4.9%

5.2%

GBP

8:30

Core Consumer Price Index (YoY) (SEP)

3.2%

3.3%

GBP

8:30

Retail Price Index (SEP)

237.6

237.9

GBP

8:30

Retail Price Index (MoM) (SEP)

0.5%

0.8%

GBP

8:30

Retail Price Index (YoY) (SEP)

5.4%

5.6%

GBP

8:30

Retail Price Index Ex Mort Int.Payments (YoY) (SEP)

5.5%

5.7%

EUR

9:00

German ZEW Survey (Economic Sentiment) (OCT)

-45.0

-48.3

Marks the lowest reading since November 2008.

EUR

9:00

German ZEW Survey (Current Situation) (OCT)

40.0

38.4

EUR

9:00

Euro-Zone ZEW Survey (Economic Sentiment) (OCT)

--

-51.2

EUR

9:00

Italian Current Account (euros) (AUG)

--

-5393M

Largest deficit since April.

USD

12:30

Producer Price Index (MoM) (SEP)

0.2%

0.8%

Fastest pace of growth since July.

USD

12:30

Producer Price Index (YoY) (SEP)

6.4%

6.9%

USD

12:30

PPI Ex Food & Energy (MoM) (SEP)

0.1%

0.2%

USD

12:30

PPI Ex Food & Energy (YoY) (SEP)

2.3%

2.5%

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