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Euro Rebound To Be Cut Short On Renewed Fears, Sterling To Hold Range

Euro Rebound To Be Cut Short On Renewed Fears, Sterling To Hold Range

2012-03-15 13:25:00
David Song, Strategist
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Talking Points

  • Euro: ECB HighlightsSticky Prices, Portugal & Ireland May Need More Assistance
  • British Pound: BoE’s Broadbent Softens Dovish Tone Ahead Of Minutes
  • U.S. Dollar: Index Marks Failed Run At 11,000, Sticky Inflation To Spur Bullish Reaction

Euro: ECB Highlights Sticky Prices, Portugal & Ireland May Need More Assistance

The EURUSD pared the overnight decline to 1.3003 as the European Central Bank’s monthly report highlighted the ‘upside risks’ for inflation, while board member Erkki Liikanen curbed bets for more monetary easing as he expects the Governing Council to unwind the non-standard measures in a ‘timely’ manner. Indeed, it seems as though the ECB will sit on the sidelines after completing the second Long Term Refinancing Operation, but the central bank may have little choice but to push the benchmark interest rate below 1.00% as the debt crisis continues to dampen the fundamental outlook for the euro-area.

Former ECB board member Lorenzo Bini Smaghi warned that Portugal and Ireland will need additional aid should the two countries fail to tap the bond market in 2013, and the heightening risk for contagion casts a bearish outlook for the EURUSD as European policy makers struggle to restore investor confidence. As the recent selloff in the euro-dollar fails to produce a test of the February low (1.2973), we may see the pair consolidate going into the end of the week, but the pair looks poised to give back the advance from earlier this year as the exchange rate continues to carve a head-and-shoulders top in March. In turn, we will maintain our bearish call for the EURUSD and we should see the pair continue to work its way towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50 as the fundamental outlook for the euro-area remains bleak.

British Pound: BoE’s Broadbent Softens Dovish Tone Ahead Of Minutes

The British Pound bounced back from a low of 1.5633 to maintain the range from earlier this week, and the GBPUSD should track sideways going into the following week as market participants wait for the Bank of England Minutes due out on March 21. As the BoE reverts back to a wait-and-see approach, the fresh batch of commentary is likely to heavily influence the sterling over the near-term, and we may see the policy statement prop up the British Pound should the central bank soften its dovish tone for monetary policy. Indeed, BoE board member Ben Broadbent said that the recent efforts to address the sovereign debt crisis paired with the more robust recovery in the U.S. ‘could warrant a withdrawal of monetary accommodation,’ and saw a limited risk of undershooting the 2% target for inflation as central bank officials expect economic activity to gather pace in 2012. In turn, we may see the Monetary Policy Committee conclude its easing cycle in 2012, and the shift in the policy outlook should prop up the sterling as market participants scale back speculation for more quantitative easing.

U.S. Dollar: Index Marks Failed Run At 11,000, Sticky Inflation To Spur Bullish Reaction

The greenback struggled to hold its ground on Thursday, with the Dow Jones- FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 10,097, but we should see the reserve currency appreciate further over the near-term as the fundamental outlook for the world’s largest economy continues to improve. As the developments coming out of the U.S. dampens expectations for additional monetary support, we expect to see the recent strength in the dollar to gather pace going forward, and the Fed should continue to soften its dovish tone in 2012 as the more robust recovery raises the risk for inflation. Indeed, the consumer price report on tap for Friday is expected to highlight the stickiness in inflation, and the data could push the USDOLLAR higher going into the following week as

--- 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.

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Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Philadelphia Fed. (MAR)

11.0

10.2

EUR

18:30

14:30

ECB's Ewald Nowotny Speaks on Euro Economy

--

--

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:00

ANZ Job Ads (MoM) (FEB)

--

5.3%

Rises for the first time since November.

NZD

21:30

Business NZ Performance of Manufacturing Index (FEB)

--

57.7

Fastest pace of growth since April 2010.

AUD

0:00

Consumer Inflation Expectation (MAR)

--

2.7%

Tips higher for the second time this year.

NZD

0:00

ANZ Consumer Confidence Index (MAR)

--

110.2

Weakens for the second straight month.

NZD

0:00

ANZ Consumer Confidence (MoM) (MAR)

--

-2.7%

AUD

0:30

New Motor Vehicle Sales (MoM) (FEB)

--

0.0%

Fails to grow for the fourth time in the last six-months.

AUD

0:30

New Motor Vehicle Sales (YoY) (FEB)

--

1.7%

AUD

0:30

RBA Foreign Exchange Transaction (Australian dollar) (FEB)

--

372M

Lowest since November.

JPY

4:00

Tokyo Condominium Sales (YoY) (FEB)

--

13.0%

Expands for the fourth month.

EUR

7:00

EU 25 New Car Registrations (FEB)

--

-9.7%

Weakens for the fifth month.

CHF

8:30

Swiss National Bank Interest Rate Decision

0.00%

0.00%

Keeps EURCHF peg at 1.20.

EUR

9:30

Italian General Government Debt (JAN)

--

1935.8B

Hits a record high.

EUR

10:00

Euro-Zone Employment (QoQ) (4Q)

--

-0.2%

Contracts for the second straight quarter.

EUR

10:00

Euro-Zone Employment (YoY) (4Q)

--

-0.2%

EUR

10:00

Euro-Zone Labor Costs (YoY) (4Q)

2.3%

2.8%

Highest since 3Q 2009.

USD

12:30

Empire Manufacturing (MAR)

17.50

20.21

Highest since June 2010.

USD

12:30

Producer Price Index (MoM) (FEB)

0.5%

0.4%

Slowest rate of growth since August 2010. Core rate holds steady for third month.

USD

12:30

Producer Price Index (YoY) (FEB)

3.3%

3.3%

USD

12:30

PPI Ex Food & Energy (MoM) (FEB)

0.2%

0.2%

USD

12:30

PPI Ex Food & Energy (YoY) (FEB)

2.9%

3.0%

USD

12:30

Initial Jobless Claims (MAR 10)

357K

351K

Lowest since April 2008

USD

12:30

Continuing Claims (MAR 3)

3405K

3343K

Lowest since August 2008.

USD

13:00

Net Long-term TIC Flows (JAN)

$38.5B

$101.0B

Highest since August 2010.

USD

13:00

Total Net TIC Flows (JAN)

$40.0B

$18.8B

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

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