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Euro Optimism Resurfaces, Sterling Propped Up By Less Dovish BoE

Euro Optimism Resurfaces, Sterling Propped Up By Less Dovish BoE

2012-02-09 15:45:00
David Song, Strategist
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Talking Points

  • Euro: Germany Prepares To Vote On Bailout, ECB To Preserve Dovish Tone
  • British Pound: BoE Expands Asset Purchases To GBP 325B, Stronger Recovery Ahead
  • U.S. Dollar: Index Gives Back Overnight Advance But Poised For Reversal

Euro: Greece Policy Makers Agree On More Austerity, ECB Turns More Dovish

The Euro advanced to fresh yearly high of 1.3320 as Greek policy makers agreed to the strict draft laid out by the Troika – the European Central Bank, the European Commission and the International Monetary Fund – but the single currency continues to face many hurdles as the ECB resists calls to take a haircut on its Greek debt holdings. Indeed, we’re supposed to see an official statement later today as European finance ministers convene in Brussels, and the development may send the euro higher as it dampens the risk for contagion.

However, as the ECB continues to highlight the ongoing weakness within the real economy, it seems as though the Governing Council will keep the door open to expand monetary policy further, and the dovish tone held by the central bank dampens the appeal of the single currency as the region faces a risk for a major economic downturn in 2012. As the EUR/USD struggles to break above the 100-Day SMA at 1.3337, it seems as though the bullish momentum is starting to taper off, and we will be keeping a close eye on the relative strength index for confirmation as it climbs to 64. Nevertheless, as we have the Euro-Zone 4Q GDP report on tap for the following week, the ECB has hinted at a dismal growth report in light of the slowing recovery, and we may see a sharp decline in the exchange rate as the data spurs speculation for more monetary easing.

British Pound: BoE Expands Asset Purchases To GBP 325B, Stronger Recovery Ahead

The British Pound advanced to a high of 1.5882 as the Bank of England softened its dovish tone for monetary policy, and the sterling may continue to recoup the losses from the previous year as the central bank strikes a more balanced outlook for the U.K. Although, the BoE increased its asset purchase program to GBP 325B, the central bank left out remarks supporting expectations for more quantitative easing, and it seems as though the MPC is a step closer in concluding its easing cycle as policy makers anticipate to see a stronger recover this year. In turn, the GBP/USD looks poised to make another run at the 200-Day SMA (1.5941), but we will keep a close eye on the relative strength index as it approaches overbought territory.

U.S. Dollar: Index Gives Back Overnight Advance But Poised For Reversal

The greenback gave back the overnight advance, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) falling back from a high of 9,735, but we may see the reserve currency regain its footing during the North American trade as risk sentiment appears to be tapering off. As the U.S. equity market opens lower, the shift away from risk-taking behavior should prop up the greenback, but the developments coming out of the EU meeting may shore up market sentiment as European policy makers increase their efforts to address the sovereign debt crisis. In turn, we may see the USDOLLAR consolidate within the narrow range from earlier this week, but we could see a short-term reversal in the index as the relative strength index continues to hold above oversold territory.

--- 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

NZD

21:45

16:45

Card Spending (MoM) (JAN)

0.5%

-0.2%

NZD

21:45

16:45

Card Spending - Retail (MoM) (JAN)

0.5%

-0.3%

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:45

Employment Change (QoQ) (4Q)

0.4%

0.1%

Expands for the fourth straight quarter, lowest jobless rate since 1Q 2010.

NZD

21:45

Employment Change (YoY) (4Q)

1.9%

1.6%

NZD

21:45

Unemployment Rate (4Q)

6.5%

6.3%

NZD

21:45

Participation Rate (QoQ) (4Q)

68.5%

68.2%

JPY

23:50

Housing Loans (YoY) (4Q)

--

2.2%

Rises for the first time since 2Q 2010.

JPY

23:50

Japan Money Stock M2+CD (YoY) (JAN)

3.1%

3.0%

Weakens for the first time since August.

JPY

23:50

Japan Money Stock M3 (YoY) (JAN)

2.6%

2.6%

JPY

23:50

Machine Orders (MoM) (DEC)

-5.0%

-7.1%

Declines for the fifth time in 2011.

JPY

23:50

Machine Orders (YoY) (DEC)

8.5%

6.3%

CNY

1:30

Consumer Price Index (YoY) (JAN)

4.0%

4.5%

Fastest pace of growth since October.

CNY

1:30

Producer Price Index (YoY) (JAN)

0.8%

0.7%

Slowest pace of growth since November 2009.

JPY

5:00

Consumer Confidence (JAN)

38.5

40.0

Highest since February.

CHF

6:45

SECO Consumer Confidence (JAN)

-22

-19

Highest since July.

GBP

9:30

Industrial Production (MoM) (DEC)

0.2%

0.5%

Rises for the first time since August.

GBP

9:30

Industrial Production (YoY) (DEC)

-3.1%

-3.3%

GBP

9:30

Manufacturing Production (MoM) (DEC)

0.2%

1.0%

Fastest pace of growth since March 2010.

GBP

9:30

Manufacturing Production (YoY) (DEC)

0.3%

0.8%

GBP

9:30

Visible Trade Balance (Pounds) (DEC)

-8.600B

-7.111B

Smallest deficit since November 2009.

GBP

9:30

Trade Balance Non EU (Pounds) (DEC)

-5.000B

-3.748B

GBP

9:30

Total Trade Balance (Pounds) (DEC)

-2.700B

-1.109B

GBP

12:00

Bank of England Interest Rate Decision

0.50%

0.50%

Leaves out comments highlighting more easing.

GBP

12:00

Bank of England Asset Purchase Target

325B

325B

EUR

12:45

European Central Bank Interest Rate Decision

1.00%

1.00%

Continues to stress the downside risks for the euro-area.

CAD

13:30

New Housing Price Index (MoM) (DEC)

0.2%

0.1%

Increases for nine straight months.

CAD

13:30

New Housing Price Index (YoY) (DEC)

2.5%

2.5%

USD

13:30

Initial Jobless Claims (FEB 4)

370K

358K

Below 400K for fourth week.

USD

13:30

Continuing Claims (JAN 28)

3500K

3515K

Above 3.5K for second time in January.

USD

15:00

Wholesale Inventories (DEC)

0.5%

1.0%

Rises for the tenth time in 2011.

GBP

15:00

NIESR Gross Domestic Product Estimate (JAN)

--

-0.2%

Contracts for the second month.

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