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Euro To Threaten 1.3000, Bullish Sterling Formation To Gather Pace

Euro To Threaten 1.3000, Bullish Sterling Formation To Gather Pace

David Song, Strategist

Talking Points

  • Euro: ECB Talks Down More Easing, French Election In Focus
  • British Pound: Hold’s Narrow Range Ahead Of 1Q GDP
  • U.S. Dollar: Index Continues To Hold Support, FOMC To Set Tone For May

Euro: ECB Talks Down More Easing, French Election In Focus

The Euro weakened to 1.3119 as the developments coming out of the region sparked fears for a prolonged recession, and the single currency may face additional headwinds over the near-term as the fundamental outlook for the region turns increasingly bleak. Following the G20 meeting, it seems as though the EU will continue to sit on the sidelines even as the international community says more needs to be done, while there appears to be a growing rift within the European Central Bank as the governments operating under the single currency become increasingly reliant on monetary support. As the ECB continues to assess the impact of its Long Term Refinancing Operations, it seems as though the central bank will maintain its current policy stance throughout the first-half of the year, but we may see the board continue to carry out its easing cycle in 2012 as the slowing recovery dampens the outlook for growth and inflation.

At the same time, the election in France also appears to be dragging on the Euro as President Nicolas Sarkozy risks losing his seat to Francois Hollande, and the shift in leadership could further dampen the outlook for the region as the challenger pledges to renegotiate parts of the new fiscal pact. As the EURUSD fails to hold above 1.3200, it seems as though the pair is certainly carving out a lower top ahead of May, and we should see the bearish formation continue to take shape over the near-term as price action continues to approach the apex of the descending triangle. In turn, we’re still looking for a break and a close below 1.3000 to lead up to a major selloff in the exchange rate, and we should see the pair fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50 as European policy makers fail to stem the risk for contagion.

British Pound: Hold’s Narrow Range Ahead Of 1Q GDP

The British Pound bounced back from an overnight low of 1.6076 to hold within Friday’s range, and the sterling looks poised to resume the advance from earlier this month as the economic docket is expected to reinforce an improved outlook for the U.K. As the 1Q GDP report is expected to show the economy expanding 0.1% during the first three-months of the year, easing fears of a double-dip recession should help to prop up the exchange rate, and we may see market participants become increasingly bullish against the GBPUSD as the Bank of England drops its dovish tone for monetary policy. As the pound-dollar carves out a higher low in April, we are still looking for a run at the 23.6% Fib from the 2009 low to high around 1.6250, and we should see the sterling outperform throughout 2012 as the shift in the policy outlook spurs speculation for a rate hike.

U.S. Dollar: Index Continues To Hold Support, FOMC To Set Tone For May

The greenback regained its footing on Monday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a high of 9,950, and the reserve currency may track higher in May as it appears to be carving out a higher low this month. As the 9,900 figure continues to provide support, the dollar certainly looks poised to appreciate further in May, and the FOMC interest rate decision could spur a key rally in the greenback should the central bank continue to scale back its dovish tone for monetary policy.

--- 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

15:45

11:45

ECB's Jens Weidmann Speaks on Euro Economy

NZD

22:45

18:45

Net Migration s.a. (MAR)

-440

Currency

GMT

Release

Expected

Actual

Comments

AUD

1:30

Producer Price Index (QoQ) (1Q)

0.4%

-0.3%

Slowest pace of growth since 2Q 2010.

AUD

1:30

Producer Price Index (YoY) (1Q)

2.2%

1.4%

CNY

2:30

HSBC Flash Purchasing Manager Index Manufacturing (APR)

--

49.1

Contracts for the sixth straight month.

JPY

5:00

Leading Index (FEB F)

--

96.3

Highest since February 2008.

JPY

5:00

Coincident Index (FEB F)

--

95.0

JPY

5:00

Supermarket Sales (YoY) (MAR)

--

-2.4%

Falls for the second time in 2012.

EUR

6:45

French Own-Company Production Outlook (APR)

--

-4

Business confidence slips to a two-month low.

EUR

6:45

French Production Outlook Indicator (APR)

--

-14

EUR

6:45

French Business Confidence Indicator (APR)

96

95

CHF

7:00

Money Supply M3 (YoY) (MAR)

--

6.6%

Rebounds from lowest since July.

CHF

7:00

Real Estate Index Family Homes (1Q)

--

410.4

Highest since the series began in 1997.

EUR

7:00

French PMI Manufacturing (APR P)

47.4

47.3

Contracts for the second month.

EUR

7:00

French PMI Services (APR P)

50.1

46.4

EUR

7:30

German PMI Manufacturing (APR A)

49.0

46.3

Lowest print since July 2009.

EUR

7:30

German PMI Services (APR A)

52.3

52.6

EUR

8:00

Euro-Zone PMI Manufacturing (APR A)

48.1

46.0

Contracts for the third month, lowest since November.

EUR

8:00

Euro-Zone PMI Services (APR A)

49.3

47.9

EUR

8:00

Euro-Zone PMI Index Composite (APR A)

49.3

47.4

EUR

8:00

Italian Consumer Confidence Index s.a. (APR)

96.0

89.0

Lowest since the series began in 2006.

EUR

9:00

Euro-Zone Government Debt-GDP Ratio (JUL 3)

--

87.2%

Hits a record high in 2011.

CAD

12:30

Wholesale Sales (MoM) (FEB)

-0.2%

1.6%

Largest advance since May 2011.

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

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