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USD To Hold Steady Ahead Of FOMC, Euro Outlook Remains Bearish On ECB

USD To Hold Steady Ahead Of FOMC, Euro Outlook Remains Bearish On ECB

2012-04-25 13:15:00
David Song, Strategist

Talking Points

  • U.S. Dollar: All Eyes On FOMC, Bernanke Press Conference In Focus
  • Euro: Bearish Formation Continues To Take Shape, ECB Strikes Dovish Tone
  • British Pound: 1Q U.K. GDP Disappoints, Look For Support At 1.6000

U.S. Dollar: All Eyes On FOMC, Bernanke Press Conference In Focus

The greenback is regaining its footing ahead of the FOMC interest rate decision, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)paring the overnight decline to 9,910, and the reserve currency may snap back during the North American trade should the Federal Reserve strike an improved outlook for the world’s largest economy. Beyond the rate decision at 16:30 GMT, we will be keeping a close eye on the updated forecast for growth and inflation at 18:00 GMT, but the press conference with Fed Chairman Ben Bernanke at 18:15 GMT could spark a sharp rally in the USD should the central bank head adopt a hawkish outlook for monetary policy.

As Fed officials take note of the more robust recovery, the central bank may turn its attention to the stickiness in underlying inflation, and we may see the FOMC start to discuss a tentative exit strategy as the economy gets on a more sustainable path. As the Fed shifts gears, the shift in the policy outlook encourage a bullish forecast for the USD, and greenback should appreciate further going into May as the central bank moves away from its easing cycle. As the USDOLLAR continues to find support around 9,900, the index appears to be carving a floor for a move higher, and we are still looking for another run at the 78.6% Fibonacci retracement around 10,118 as interest rate expectations pick up.

Euro: Bearish Formation Continues To Take Shape, ECB Strikes Dovish Tone

The Euro extended the advance from the previous day to reach a fresh weekly high of 1.3235, but we are still bearish on the EURUSD as the pair remains stuck in the descending triangle carried over from earlier this year. As price action approaches the apex of the bearish formation, we should see interim support around 1.3000 give way, and the single currency should track lower throughout the year as the European Central Bank sticks to its easing cycle. Indeed, ECB President Mario Draghi struck a rather dovish tone while speaking in Brussels and said that the risks surrounding the region are ‘broadly balanced,’ and went onto say that ‘underlying price pressures should remain modest’ as the region faces a slowing recovery. In addition, the central bank head argued that ‘any exit strategy is premature given the current economic situation,’ and it seems as though the Governing Council will embark on more easing as the governments operating under the single currency become increasingly reliant on monetary support. As the EURUSD struggles to hold above 1.3200, we should see the bearish formation continue to take shape, and we may see the pair fall back towards the 23.6% Fib from the 2009 high to the 2010 low around 1.2630-50 as it carves out a lower top in April.

British Pound: 1Q U.K. GDP Disappoints, Look For Support At 1.6000

The British Pound slipped to an overnight low of 1.6080 as the 1Q GDP report for the U.K. fell short of market expectations, and we may see a short-term correction in the GBPUSD as the pair appears to be carving a short-term top ahead of 1.6200. However, as the pound-dollar maintains the upward trending channel from earlier this year, we should see former resistance around 1.6000 to act as new support, and we will preserve our bullish call for the sterling as the Bank of England turns its attention to the stickiness in core inflation. As the BoE scales back its dovish tone for monetary policy, a short-term pullback could set the stage for a larger move to the upside, and the GBPUSD we may see the sterling track higher throughout the year as the BoE looks to conclude its easing cycle.

--- 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

14:30

10:30

DOE U.S. Crude Oil Inventories (APR 20)

2800K

3856K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (APR 20)

-1500K

592K

USD

14:30

10:30

DOE U.S. Distillate Inventory (APR 20)

500K

-2908K

USD

16:30

12:30

Federal Open Market Committee Interest Rate Decision

0.25%

0.25%

USD

18:00

14:00

FOMC to Release Projections of Economy and Fed Funds Rate

USD

18:15

14:15

Fed's Bernanke Holds Press Conference

NZD

21:00

17:00

Reserve Bank of New Zealand Interest Rate Decision

2.50%

2.50%

Currency

GMT

Release

Expected

Actual

Comments

JPY

6:00

Machine Tool Orders (YoY) (MAR F)

- -

1.6%

First rise since December.

GBP

8:30

Gross Domestic Product (QoQ) (1Q A)

0.1%

-0.2%

Marks first double-dip recession since 1970’s.

GBP

8:30

Gross Domestic Product (YoY) (1Q A)

0.3%

0.0%

GBP

8:30

Index of Services (MoM) (FEB)

0.2%

-0.4%

Weakens for the first time since October.

GBP

8:30

Index of Services (3Mo3M) (FEB)

0.5%

0.2%

GBP

10:00

CBI Trends Total Orders (APR)

-6

-8

Business confidence advances to the highest since April 2010.

GBP

10:00

CBI Trends Selling Prices (APR)

26

7

GBP

10:00

CBI Business Optimism (APR)

-18

22

USD

11:00

MBA Mortgage Applications (APR 20)

--

-3.8%

Weakens for the second time in April.

USD

12:30

Durable Goods Orders (MAR)

-1.5%

-4.2%

Marks the biggest decline since January 2009.

USD

12:30

Durables ex Transportation (MAR)

0.5%

-1.1%

USD

12:30

Non-Defense Capital Goods Orders ex Aircrafts (MAR)

1.0%

-0.8%

USD

12:30

Non-Defense Cap Goods Shipments ex Aircrafts (MAR)

1.4%

2.6%

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

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