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Euro Outlook Hinges On ECB’s LTRO, Sterling To Threaten Range

Euro Outlook Hinges On ECB’s LTRO, Sterling To Threaten Range

2012-02-28 14:15:00
David Song, Strategist
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Talking Points

  • Euro: S&P Cuts Greece To ‘Selective Default,’ All Eyes On LTRO
  • British Pound: Remains Capped By 200-Day SMA, U.K. Recovery To Gather Pace
  • U.S. Dollar: Regains Footing As Risk Sentiment Falters, Consumer Confidence On Tap

Euro: S&P Cuts Greece To ‘Selective Default,’ All Eyes On LTRO

The Euro climbed to an overnight high of 1.3462 amid hopes surrounding the second Long Term Refinancing Operations, and the rise in market sentiment may push the EURUSD higher during the North American trade as European policy makers strike an improved outlook for the region. Indeed, European Central Bank board member Ewald Nowotny talked down speculation for additional monetary support, stating that the next LTRO will help the ailing economy, and it seems as though the Governing Council is looking to conclude its easing cycle as policy makers expect to see a stronger recovery later this year.

Indeed, the outcome of the LTRO will heavily influence the EURUSD going into March, but the results could rattle investor confidence should demands exceed the EUR 489B offered back in December. As banks across the euro-area continue to horde cash, the extraordinary measure may fail to spur a more robust recovery, and we may see the central bank expand its balance sheet further throughout the year as recession dampens the outlook for inflation. As the EURUSD struggles to clear the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500, the inverse head-and-shoulders pattern appears to have played out, and we will be keeping a close eye on the relative strength index as it approaches overbought territory. Should the RSI continue to come off of its recent highs, a short-term pullback in the oscillator could set the stage for a short-term correction in the exchange rate, but we may see the EURUSD breakout of the upward trending channel carried over from earlier this year should the fundamental outlook for the euro-area turn increasingly bleak.

British Pound: Remains Capped By 200-Day SMA, U.K. Recovery To Gather Pace

The British Pound pared the overnight advance to 1.5875 amid the shift in risk sentiment, and the GBPUSD may continue to consolidate over the next 24-hours of trading as the pair remains capped by the 200-Day SMA at 1.5906. As the pound-dollar appears to be carving out a short-term top ahead of March, we may see the exchange rate fall back towards the 50-Day SMA (1.5638) going into the middle of the week, but we may see the pair breakout of its current range as the economic docket is expected to show a more robust recovery in Britain. However, the technical outlook paints a mixed picture for the GBPUSD as there appears to be a bearish divergence in the RSI, and we may see sterling give back the advance from earlier this year should we see a slew of dismal developments coming out of the U.K.

U.S. Dollar: Regains Footing As Risk Sentiment Falters, Consumer Confidence On Tap

The greenback continued to lose ground on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to an overnight low of 9,779, but we may see the reserve currency regain its footing during the North American trade as risk sentiment appears to be tapering off. Indeed, the dismal U.S. Durable Goods report appears to be weighing on investor confidence, and the shift away from risk-taking behavior may gather pace over the next 24-hours as the U.S. equity market opens lower. Nevertheless, as we’re expecting to see a rebound in the Conference Board’s Consumer Confidence survey, a marked rise in household sentiment could shore up market sentiment, but we may see the USD continue to benefit from safe-haven flows should the report fall short of market expectations.

--- 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

USD

15:00

10:00

Consumer Confidence (FEB)

62.7

61.1

USD

15:00

10:00

Richmond Fed Manufacturing Index (FEB)

12

12

CHF

17:30

12:30

SNB's Thomas Jordan Speaks on Swiss Economy

--

--

Currency

GMT

Release

Expected

Actual

Comments

JPY

23:50

Retail Trade s.a. (MoM) (JAN)

1.0%

4.1%

Largest advance since the series began in 200.

JPY

23:50

Retail Trade (YoY) (JAN)

-0.1%

1.9%

JPY

23:50

Large Retailers' Sales (JAN)

-1.1%

-1.0%

Falls for the sixth month.

JPY

5:00

Small Business Confidence (FEB)

--

45.3

Lowest since June.

EUR

7:00

German GfK Consumer Confidence Survey (MAR)

6.0

6.0

Highest since March 2011.

CHF

7:00

UBS Consumption Indicator (JAN)

--

0.92

Holds above 0.90 for second month.

EUR

10:00

Euro-Zone Economic Confidence (FEB)

94.0

94.4

Improves for the second straight month.

EUR

10:00

Euro-Zone Business Climate Indicator (FEB)

-0.15

-0.18

EUR

10:00

Euro-Zone Consumer Confidence (FEB F)

-20.2

-20.3

EUR

10:00

Euro-Zone Industrial Confidence (FEB)

-6.9

-5.8

EUR

10:00

Euro-Zone Services Confidence (FEB)

-0.6

-0.9

GBP

11:00

CBI Reported Sales (FEB)

-12

-2

Holds in negative territory for second month.

EUR

13:00

German Consumer Price Index (MoM) (FEB P)

0.5%

0.7%

Fastest pace of growth since November.

EUR

13:00

German Consumer Price Index (YoY) (FEB P)

2.1%

2.3%

EUR

13:00

German CPI - EU Harmonised (MoM) (FEB P)

0.5%

0.9%

EUR

13:00

German CPI - EU Harmonised (YoY) (FEB P)

2.2%

2.5%

USD

13:30

Durable Goods Orders (JAN)

-1.0%

-4.0%

Biggest decline since January 2009, investments weaken the most since January 2011.

USD

13:30

Durables ex Transportation (JAN)

0.0%

-3.2%

USD

13:30

Non-Defense Captail Goods Orders ex Aircrafts (JAN)

-1.3%

-4.5%

USD

13:30

Non-Defense Captail Goods Shipment ex Aircrafts (JAN)

-0.9%

-3.1%

USD

14:00

S&P/Case-Shiller US Home Price Index (YoY) (4Q)

-4.30%

-4.03%

Declines for the sixth consecutive quarter.

USD

14:00

S&P/Case-Shiller US Home Price Index (4Q)

--

125.67

USD

14:00

S&P/Case-Shiller Composite-20 s.a. (MoM) (DEC)

-0.35%

-0.50

Weakens for the eighth month.

USD

14:00

S&P/Case-Shiller Composite-20 (YoY) (DEC)

-3.65%

-3.99%

USD

14:00

S&P/Case-Shiller Home Price Index (DEC)

137.11

136.71

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