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EUR Tumbles As Greece Fails To Form Government, GBP To Resume Rally

EUR Tumbles As Greece Fails To Form Government, GBP To Resume Rally

2012-05-15 13:40:00
David Song, Strategist
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Talking Points

  • Euro: Greece Fails To Form Government, ECB Conference In Focus
  • British Pound: BoE To Preserve Easing Cycle, Lower Growth Forecast
  • U.S. Dollar: FOMC To Sound More Hawkish On Sticky Inflation, Faster Growth

Euro: Greece Fails To Form Government, ECB Conference In Focus

The Euro pared the overnightadvance to 1.2868 as Greece fails to form a coalition government, and the single currency should continue to give back the advance from earlier this year as the fundamental outlook for the region turns increasingly bleak. As European policy makers struggle to meet on common ground, the risks surrounding the new election mixed with fears of a Greek exit continues to cast a bearish outlook for the single currency, and we may see the European Central Bank try to talk up market sentiment as the group is scheduled to hold its monetary policy conference on Wednesday at 13:00 GMT.

As the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support, the ECB may show a greater willingness to carry its easing cycle into the second-half of the year, and we may see the central bank target the benchmark interest rate as its non-standard measures have a limited impact in stemming the risk for contagion. As the recent decline in the EURUSD remains oversold, the pair looks poised for a short-term correction, but we should see the pair track lower until the relative strength index climbs back above 30. In turn, we should see the euro-dollar continue to retrace the advance from earlier this year, and we are still looking for a test of the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental outlook for the region turns increasingly bleak.

British Pound: BoE To Preserve Easing Cycle, Lower Growth Forecast

The British Pound slipped to a fresh monthly low of 1.6018 as market participants scaled back their appetite for risk, and we may see the GBPUSD threaten the upward trend from earlier this year as market participants see the Bank of England carrying its easing cycle into the second-half of the year. As the U.K. faces a double-dip recession, there’s speculation that the BoE will curb its growth forecast and leave the door open to expand its balance sheet further, but the central bank may sound a bit more hawkish this time around amid the stickiness in underlying inflation. In turn, we may see a growing rift in within the Monetary Policy Committee, but we anticipate to see the group move away from its easing cycle as its credibility for price stability remains under scrutiny. In turn, we will maintain out bullish call for the GBPUSD, and we should see the short-term correction taper off going into the middle of the week as the pair comes up against former resistance around 1.6000, which should act as new support.

U.S. Dollar: FOMC To Sound More Hawkish On Sticky Inflation, Faster Growth

The greenback extended the rally from earlier this week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a fresh monthly high of 10,070, and the reserve currency may track higher throughout the North American trade as the flight to safety picks up. Indeed, the developments coming out of the world’s largest economy continues to instill a bullish outlook for the dollar as it dampens the prospects for another large-scale asset purchase program. In turn, the FOMC meeting minutes on tap for Wednesday may highlight an improved outlook for the U.S., and a less dovish statement should increase the appeal of the reserve currency as market participants raise bets for a rate hike.

--- 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

14:00

10:00

Business Inventories (MAR)

0.5%

0.6%

USD

14:00

10:00

NAHB Housing Market Index (MAY)

26

25

Currency

GMT

Release

Expected

Actual

Comments

AUD

1:30

New Motor Vehicle Sales (MoM) (APR)

-0.7%

Contracts for first time in 4 months.

AUD

1:30

New Motor Vehicle Sales (YoY) (APR)

7.3%

NZD

3:00

Non Resident Bond Holdings (APR)

62.1%

Highest since September.

JPY

5:00

Consumer Confidence (APR)

40.8

40.0

Weakens for the first time since April.

EUR

5:30

French GDP (QoQ) (1Q P)

0.0%

0.0%

Fourth quarter of slowing growth.

EUR

5:30

French GDP (YoY) (1Q P)

0.5%

0.3%

EUR

5:30

French CPI(MoM) (APR)

0.2%

0.1%

Lowest rate since July 2011.

EUR

5:30

French CPI (YoY) (APR)

2.2%

2.1%

EUR

5:30

French CPI - EU Harmonised (MoM) (APR)

0.2%

0.2%

EUR

5:30

French CPI - EU Harmonised (YoY) (APR)

2.5%

2.4%

EUR

5:30

French CPI ex Tobacco Index (APR)

124.88

124.8

EUR

6:00

German GDP s.a. (QoQ) (1Q P)

0.1%

0.5%

Reverses previous quarter's contraction.

EUR

6:00

German GDP n.s.a. (YoY) (1Q P)

0.9%

1.7%

EUR

6:00

German GDP w.d.a. (YoY) (1Q P)

0.8%

1.2%

EUR

6:45

French Wages (QoQ) (1Q P)

0.7%

0.9%

Fastest pace of growth since 1Q 2011.

EUR

6:45

French Non-Farm Payrolls (QoQ) (1Q P)

-0.2%

0.1%

Rises for the first time since 2Q 2011.

GBP

8:30

Visible Trade Balance (Pounds) (MAR)

-8.400B

-8.564B

Narrows for the first time since December.

GBP

8:30

Trade Balance Non EU (Pounds) (MAR)

-4.700B

-4.109B

GBP

8:30

Total Trade Balance (Pounds) (MAR)

-2.900B

-2.739B

EUR

9:00

Portugal GDP s.a. (QoQ) (1Q P)

-1.0%

-0.1%

Contracts for sixth quarter.

EUR

9:00

Portugal GDP n.s.a. (YoY) (1Q P)

-3.1%

-2.2%

EUR

9:00

Euro-Zone GDP s.a. (QoQ) (1Q A)

-0.2%

0.0%

Avoids a second quarter of contraction.

EUR

9:00

Euro-Zone GDP s.a. (YoY) (1Q A)

-0.2%

0.0%

EUR

9:00

Euro-Zone ZEW Survey (Economic Sentiment) (MAY)

-2.4

Lowest since February.

EUR

9:00

German ZEW Survey (Economic Sentiment) (MAY)

19.0

10.8

Highest in 9 months.

EUR

9:00

German ZEW Survey (Current Situation) (MAY)

39.0

44.1

EUR

9:00

Greece GDP (YoY) (1Q P)

-6.2%

Contracts for the eighth straight quarter.

USD

12:30

CPI (MoM) (APR)

0.0%

0.0%

Lowest headline reading since February 2011. Core rate holds steady since September 2008.

USD

12:30

CPI (YoY) (APR)

2.3%

2.3%

USD

12:30

CPI ex Food & Energy (MoM) (APR)

0.2%

0.2%

USD

12:30

CPI ex Food & Energy (YoY) (APR)

2.3%

2.3%

USD

12:30

CPI n.s.a. (APR)

229.900

230.085

USD

12:30

CPI Core Index s.a. (APR)

228.984

USD

12:30

Empire Manufacturing (MAY)

9.00

17.09

Two-month high.

USD

12:30

Advance Retail Sales (APR)

0.1%

0.1%

Rises for the fourth consecutive month.

USD

12:30

Advance Retail Sales ex Autos (APR)

0.2%

0.1%

USD

12:30

Advance Retail Sales ex Auto & Gas (APR)

0.3%

0.1%

USD

12:30

Retail Sales "Control Group" (APR)

0.3%

0.4%

USD

13:00

Net Long-term TIC Flows (MAR)

$32.5B

$36.2B

Roses for eight straight motnhs.

USD

13:00

Total Net TIC Flows (MAR)

-49.9B

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