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Euro Reversal To Gather Pace, Sterling Holds December Range

Euro Reversal To Gather Pace, Sterling Holds December Range

David Song, Strategist

Talking Points

  • Euro: Portugal 10-Year Yield At Record-High, EU Summit Takes Center Stage
  • British Pound: Halts 10-Day Rally, Sideways Price Action
  • U.S. Dollar: Benefits From Flight To Safety, Correction Under Way

Euro: Portugal 10-Year Yield At Record-High, EU Summit Takes Center Stage

The Euro slipped to 1.3088 on Monday as the slew of ratings cut announced by Fitch sapped risk-taking behavior, and the single currency may continue to give back the advance from earlier this month should the EU Summit fail to prop up investor confidence. Indeed, heightening fears surrounding the debt crisis pushed the yield tied to Portugal’s 10-Year bond to a record high of 15.79%, and the short-term reversal in the EUR/USD may gather pace in the coming days should Greece fail to reach a debt deal with private creditors.

As the EU Summit takes center stage, the group said the new fiscal pact would include an ‘automatic’ correction mechanism paired with measures to boost economic activity, but the efforts may be too little too late as the heightening risk for contagion continues to drag on market sentiment. In turn, the European Central Bank may once again encourage commercial banks to take advantage of its \three-year loan facility on tap for the following month, but we may see President Mario Draghi continue to target the benchmark interest rate in an effort to stem the risk for a major economic downturn in 2012.

British Pound: Halts 10-Day Rally, Sideways Price Action

The British Pound weakened for the first time in eleven days amid the shift in risk sentiment, and the short-term pullback may turn into a larger correction as the GBP/USD maintains the broad range carried over from December. As the GBP/USD marks another failed run at 1.5800, the pair looks as though it will continue to track sideways over the coming days, and we should see the sterling fall back towards the 50.0% Fibonacci retracement from the 2009 low to high around 1.5270-1.5300 to test for near-term support. However, as the economic developments on tap for this week are expected to highlight an improved outlook for the U.K., positive data coming out of the region may keep the pair above the 50-Day SMA at 1.5555, and we may see the sterling continue to outperform against its major counterparts as market participants treat Cable as a safe-haven.

U.S. Dollar: Benefits From Flight To Safety, Correction Under Way

The greenback firmed up on Monday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 9,816, and reserve currency looks poised to appreciate further during the North American trade as it benefits from safe-haven flows. As the U.S. equity market opens lower, we should see the shift away from risk-taking behavior gather pace over the next 24-hours of trading, and the index should continue to retrace the decline from earlier this month as the relative strength index bounces back from a low of 32. In turn, the USDOLLAR should work its way back above the 50.0% Fibonacci retracement around 9,830, but market volatility may taper off going into the middle of the week as Fed Chairman Ben Bernanke is scheduled to testify in front of Congress on Thursday.

--- 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 Resume the Downward Trend From 2011? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

EUR

14:30

9:30

ECB Bid For 7-Day Refinancing Tender

USD

15:30

10:30

Dallas Fed Manufacturing Activity (JAN)

0

-3

EUR

17:00

12:00

ECB's Ewald Nowotny Speaks on Monetary Policy

NZD

21:45

16:45

Building Permits (MoM) (DEC)

8.0%

-6.4%

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:30

Performance Services Index (DEC)

--

50.6

Lowest since October 2009.

GBP

0:01

Hometrack Housing Survey (MoM) (JAN)

--

0.0%

Fails to grow for 19 consecutive months.

GBP

0:01

Hometrack Housing Survey (YoY) (JAN)

--

-1.6%

EUR

9:00

Italian Business Confidence (JAN)

92.3

92.1

Lowest since November 2009.

EUR

10:00

Euro-Zone Economic Confidence (JAN)

93.8

93.4

Marks the first rise since February.

EUR

10:00

Euro-Zone Business Climate Indicator (JAN)

-0.25

-0.21

EUR

10:00

Euro-Zone Consumer Confidence (JAN F)

-20.6

-20.7

EUR

10:00

Euro-Zone Industrial Confidence (JAN)

-6.8

-7.2

EUR

10:00

Euro-Zone Services Confidence (JAN)

-1.6

-0.6

EUR

13:00

German Consumer Price Index (MoM) (JAN P)

-0.4%

-0.4%

Slowest pace of growth since January.

EUR

13:00

German Consumer Price Index (YoY) (JAN P)

2.0%

2.0%

USD

13:30

Personal Income (DEC)

0.4%

0.5%

Fastest pace of growth since March.

USD

13:30

Personal Spending (DEC)

0.1%

0.0%

Fails to grow for the second time this year.

USD

13:30

Personal Consumption Expenditure Core (MoM) (DEC)

0.1%

0.2%

Fastest pace of growth since March 2010.

USD

13:30

Personal Consumption Expenditure Core (YoY) (DEC)

1.8%

1.8%

USD

13:30

Personal Consumption Expenditure Deflator (YoY) (DEC)

2.3%

2.4%

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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