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Euro Continues To Carve Lower Top, Fresh Sterling Highs In Sight

Euro Continues To Carve Lower Top, Fresh Sterling Highs In Sight

David Song, Strategist

Talking Points

  • Euro: Spanish, French Yields Tip Higher – Rumors Of Credit Rating Downgrade Resurface
  • British Pound: Advances To Fresh 2012 High As BoE Warns Of Sticky Inflation
  • U.S. Dollar: Index To Consolidate, G20 Meeting In Focus

Euro: Spanish, French Yields Tip Higher – Rumors Of Credit Rating Downgrade Resurface

The Euro advanced to an overnight high of 1.3165 as Spain sold EUR 2.54B in 2 and 10-Year bonds, which exceeded the EUR 2.5B target, but the rally was short-lived as the government offered 5.743% on the 2022 debt compared to the 5.403% in January. In contrast, France sold EUR 10.5B versus the EUR 11.0B target, while the yield tied to the five-year note climbed to 1.83% from 1.78% in March.

In light of the recent development, rumors emerged that France could face a credit rating downgrade, which pushed the euro down to 1.3069, and the heightening risk for contagion reinforces our bearish view for the EURUSD as European policy makers struggle to restore investor confidence. Despite the ongoing turmoil in Spain, the European Union said there is ‘no plan to activate the EFSF or the ESM to support or recapitalize Spanish banks,’ and we may see the European Central Bank take additional steps to shore up the ailing economy as the governments operating under the single currency become increasingly reliant on monetary support. As the EURUSD marks another failed run at 1.3200, the pair certainly appears to be carving a lower top going into the last week of April, and we are still looking for a move below 1.3000 as price action continues to approach the apex of the descending triangle. Once the key figure gives out, we expect to see the euro-dollar fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50, and the single currency is likely to face additional headwinds over the near-term as the fundamental outlook for the region turns increasingly bleak.

British Pound: Advances To Fresh 2012 High As BoE Warns Of Sticky Inflation

The British Pound climbed to a fresh yearly high of 1.6077 as Bank of England board member Adam Posen struck a more hawkish tone for monetary policy, and the sterling should track higher throughout 2012 as the central bank moves away from its easing cycle. Indeed, Mr. Posen warned about the stickiness in the core rate of inflation, stating that BoE is taking resilience in underlying price growth ‘very seriously,’ and it seems as though the Monetary Policy Committee is setting the stage to start normalizing monetary policy as central bank officials turn increasingly upbeat towards the economy. As the GBPUSD maintains the upward trending channel from earlier this year, we should see the pair continue to march towards the 23.6% Fib from the 2009 low to high around 1.6250, and we expect to see the sterling outperform against its major counterparts in 2012 amid the shift in the policy outlook.

U.S. Dollar: Index To Consolidate, G20 Meeting In Focus

The greenback continued to gain ground on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)climbing to a high of 9,974, but we may see the reserve currency consolidate during the North American trade as the U.S. equity market pares the decline from the open. At the same time, we’re expecting to see a 0.5% rise in Existing Home Sales, and a rebound in trader sentiment may sap demands for the greenback as market participants increase their appetite for risk. Nevertheless, as the Group of 20 meeting in Washington comes into focus, global policy makers may show an increased willingness to shore up the global economy, but optimism surrounding the event may quickly fizzle should group struggle to meet on common ground.

--- 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

14:00

10:00

Euro-Zone Consumer Confidence (APR A)

-19.1

USD

14:00

10:00

Philadelphia Fed. (APR)

12.1

12.5

USD

14:00

10:00

Existing Home Sales (MoM) (MAR)

0.7%

-0.9%

USD

14:00

10:00

Existing Home Sales (MAR)

4.62M

4.59M

USD

14:00

10:00

Leading Indicators (MAR)

0.2%

0.7%

EUR

15:30

11:30

ECB's Peter Praet Speaks on ECB's Role in Debt Crisis

Currency

GMT

Release

Expected

Actual

Comments

NZD

22:00

ANZ Job Ads (MoM) (MAR)

--

-1.0%

First decline since December.

NZD

22:45

Consumer Prices Index (QoQ) (1Q)

0.5%

0.5%

Slowest pace of growth since 3Q 2010.

NZD

22:45

Consumer Prices Index (YoY) (1Q)

1.6%

1.6%

JPY

23:50

Adjusted Merchandise Trade Balance (Yen) (MAR)

-446.3B

-621.3B

Largest deficit since April 2011 as imports rose the most since November.

JPY

23:50

Merchandise Trade Balance Total (Yen) (MAR)

-223.2B

-82.6B

JPY

23:50

Merchandise Trade Exports (YoY) (MAR)

0.2%

5.9%

JPY

23:50

Merchandise Trade Imports (YoY) (MAR)

7.0%

10.5%

AUD

1:30

NAB Business Confidence (1Q)

--

-1

Lowest since 3Q 2011.

AUD

1:30

RBA Foreign Exchange Transaction (Australian dollar) (MAR)

--

944M

Highest since June 2011.

EUR

8:00

Italian Industrial Orders s.a. (MoM) (FEB)

-1.1%

-2.5%

Weakens for the second month.

EUR

8:00

Italian Industrial Orders n.s.a. (YoY) (FEB)

-6.2%

-13.2%

EUR

8:00

Italian Industrial Sales s.a. (MoM) (FEB)

--

2.3%

Rises for the first time since December.

EUR

8:00

Italian Industrial Sales n.s.a. (YoY) (FEB)

--

-1.5%

USD

12:30

Initial Jobless Claims (APR 14)

370K

386K

Holding at the lowest levels since 2008.

USD

12:30

Continuing Claims (APR 7)

3300K

3297K

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

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