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USD Carves Higher Lows, Euro Top Takes Shape Ahead Of April

USD Carves Higher Lows, Euro Top Takes Shape Ahead Of April

2012-03-23 13:40:00
David Song, Currency Strategist
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Talking Points

  • U.S. Dollar: New Home Sales On Tap, Bullard Sees Rate Hike In Late 2013
  • Euro: ECB President Draghi Talks Down Greek Exit, Further Easing Ahead
  • British Pound: BoE Sees Need For More Capital, RSI Maintains Downward Trend

U.S. Dollar: New Home Sales On Tap, Bullard Sees Rate Hike In Late 2013

The greenback pared the advance from earlier this week, with the Dow Jones- FXCM U.S. Dollar Index (Ticker: USDOLLAR)tagging an overnight low of 9,950, but a rise in New Home Sales could prop up the reserve currency as it dampens speculation for additional monetary support. Demands for new homes are expected to increase 1.3% in February, and a positive development may push the dollar higher as the Fed continues to soften its dovish tone for monetary policy.

Indeed, St Louis Fed President James Bullard struck a hawkish tone during an interview with Bloomberg TV, stating that ‘ultra-easy’ policy amongst the Group of Seven heightens the risk for inflation, and went onto say that monetary policy may be at a ‘turning point’ as he expects the FOMC to start normalizing monetary policy in late 2013. As the Fed changes its tune, the shift in the policy outlook is likely to dampen the correlation between risk sentiment and the USD, and we should see the greenback continue to appreciate against its major counterparts as the fundamental outlook for the world’s largest economy picks up. In turn, we will maintain our bullish call for the greenback, and we should see the dollar index make another run at the 78.6% Fibonacci retracement (10,118) as it looks to be carving out higher lows ahead of April.

Euro: ECB President Draghi Talks Down Greek Exit, Further Easing Ahead

The Euro fell back from a fresh weekly high of 1.3292 and the single currency may continue to consolidate throughout the North American trade as market participants weigh the fundamental outlook for the region. European Central Bank President Mario Draghi spoke out against a Greek exit and warned that such an event would spur ‘higher inflation and instability,’and we may see the central bank continue to shore up the ailing economy as it aims to encourage a sustainable recovery. As the EURUSD maintains the range from earlier this month, the pair should continue to track sideways going into the end of March, but we will maintain a bearish outlook for the single currency as European policy makers struggle to stem the risk for contagion. As the EURUSD continues to carve out a head-and-shoulders top, we’re still looking for a major downturn in the exchange rate, but we are waiting to see a break and a close below 1.3000 as it continues to provide support.

British Pound: BoE Sees Need For More Capital, RSI Maintains Downward Trend

The British Pound struggled to maintain the overnight advance to 1.5908 amid the slew of dismal developments coming out of the U.K., and the sterling may continue to give back the advance from earlier this month as market participants maintain bets for more quantitative easing. Indeed, the Bank of England encouraged commercial banks to raise capital ‘as early as feasible’in order to combat future shocks, and the central bank may look to expand its balance sheet further in the coming months in an effort to stem the downside risks surrounding the region. However, as the BoE reverts back to a wait-and-see approach, we may see the GBPUSD maintain the range-bound price action going into April, but the pair looks poised for a move lower as the relative strength index maintains the downward trend carried over from the previous month. In turn, we may see the pound-dollar threaten interim support around 1.5600, but a break below this level would expose the 50.0% Fib retracement from the 2009 low to high around 1.5300.

--- 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

New Home Sales (FEB)

325K

321K

USD

14:00

10:00

New Home Sales (MoM) (FEB

1.3%

-0.9%

USD

18:30

14:30

Fed's Dennis Lockhart Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

GBP

00:01

Nationwide Consumer Confidence (FEB)

47

44

Two-month low.

EUR

07:45

French Wages (4Q F)

--

0.3%

Holds steady for second month.

EUR

07:45

French Own-Company Production Outlook (MAR)

--

6

Highest reading since September.

EUR

07:45

French Business Confidence Indicator (MAR)

93

96

EUR

07:45

French Production Outlook Indicator (MAR)

-28

-15

EUR

09:00

Italy Retail Sales (MoM) (JAN)

-0.1%

0.7%

Rises for the first time since October.

EUR

09:00

Italy Retail Sales (YoY) (JAN)

-3.4%

-0.8%

GBP

09:30

BBA Loans for House Purchase (FEB)

37250

33103

Lowest since June.

CAD

11:00

Consumer Price Index (MoM) (FEB)

0.4%

0.4%

Fastest pace of growth since November, core inflation rises for the second month.

CAD

11:00

Consumer Price Index (YoY) (FEB)

2.7%

2.6%

CAD

11:00

Bank Canada CPI Core (MoM) (FEB)

0.3%

0.4%

CAD

11:00

Bank Canada CPI Core (YoY) (FEB)

2.2%

2.3%

CAD

11:00

Consumer Price Index (FEB)

--

121.2

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