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Euro Looks Lower As Spain Struggles To Tap Markets, ECB In Focus

Euro Looks Lower As Spain Struggles To Tap Markets, ECB In Focus

2012-06-05 13:50:00
David Song, Strategist
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Talking Points

  • Euro: Spain Struggles To Tap Markets Ahead Of Auction, ECB In Focus
  • British Pound: Remains Oversold, Capped By 10-Day SMA
  • Canadian Dollar: BoC Keeps Rate At 1.00%, Sees Risk Of Undershooting Inflation
  • U.S. Dollar: Remains Overbought, ISM Services Tops Forecast

Euro: Spain Struggles To Tap Markets Ahead Of Auction, ECB In Focus

The Euro tumbled to an overnight low of 1.2408 as Spain’s Treasury Minister Cristobal Montero warned that the region is having a ‘problem in accessing markets,’ and the growing threat for contagion continues to cast a bearish outlook for the EURUSD as European policy makers maintain a reactionary approach in tackling the debt crisis. Although the G7 held emergency talks amid the increased turmoil in Europe, the group refrained from releasing a joint statement, but pledged to cooperate in an effort alleviate concerns surrounding the global economy.

As Spain is scheduled to auction medium and long-term debt on Thursday, the bond auction may paint a dour outlook for the region, and we may see the EU increase its effort to buy more time as the group plans to discuss a potential ‘banking union’ at the summit on tap for later this month. However, the push for greater integration may fail to materialize as Germany continues to voice its opposition to broaden the scope of the European Stability Mechanism, and we may see the European Central Bank show a greater willingness to ease monetary policy further as European officials struggle to meet on common ground. As the EURUSD lacks momentum to put in a close above the 10-Day SMA (1.2476), the pair looks poised to extend the decline carried over from the previous month, and we will be keeping a close eye on the relative strength index as it continues to flirt with oversold territory. As the ECB interest rate decision comes into focus, the fresh batch of central bank rhetoric should set the tone for the remainder of the week, but we may see the EURUSD consolidate over the next 24-hours of trading as market participants weigh the prospects for future policy.

British Pound: Remains Oversold, Capped By 10-Day SMA

Despite the holiday in the U.K., the British Pound bounced back from an overnight low of 1.5321, and we are closely watching some key technical developments as the GBPUSD remains oversold. As the pound-dollar continues to hold above the 50.0% Fibonacci retracement from the 2009 low to high around the 1.5270 figure, we need to see the RSI push back above 30 to see a correction take shape, and we will be watching for a break and a close above the 10-Day SMA (1.5529) to see a meaningful move back to the upside. However, we may see the pair struggle to get back above former support around 1.5600 as it may come in as new resistance, and we may see the exchange rate face range-bound price action over the near-term as the Bank of England continues to endorse its wait-and-see approach.

Canadian Dollar: BoC Keeps Rate At 1.00%, Sees Risk Of Undershooting Inflation

The Bank of Canada interest rate decision propped up the loonie as the central bank continued to talk up speculation for a rate hike, but it seems as though the BoC is making another attempt to discourage the record-rise in household indebtedness as it risks derailing the economic recovery. Indeed, the central bank saw a risk of undershooting the 2% target for inflation on the back of lower energy costs, and the BoC certainly faces limited scope to embark on a series of rate hikes as the persistent strength in the local currency dampens the outlook for growth. Although the USDCAD remains overbought, the RSI needs to come down further to see the pair give back the sharp advance from the previous month, and the recent strength in the Canadian dollar may be short-lived as the flight to safety continues to gather pace.

U.S. Dollar: Remains Overbought, ISM Services Tops Forecast

The greenback bounced back on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) climbing to a high of 10,254, and the reserve currency may appreciate further as it continues to benefit from the flight to safety. However, market sentiment appears to be picking up amid the better-than-expected print for the ISM Non-Manufacturing report, but the rebound in risk-taking behavior is likely to be short-lived as the ongoing turmoil in the global economy continues to drag on investor confidence. As central bank dove Charles Evans is scheduled to speak later today, the Fed official may continue to talk up speculation for additional monetary support, but the FOMC certainly faces limited scope to push through another large-scale asset purchase program as the world’s largest economy gets on a more sustainable path. In turn, we will maintain our bullish outlook for the USD, but we are still looking for a small short-term correction as the reserve currency remains overbought.

--- 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

NZD

22:45

18:45

Value of All Buildings s.a. (1Q)

2.50%

2.90%

GBP

23:01

19:01

BRC Shop Price Index (YoY) (MAY)

1.50%

1.30%

USD

23:15

19:15

Fed's Charles Evans Speaks on U.S. Economy

Currency

GMT

Release

Expected

Actual

Comments

AUD

23:30

AiG Performance of Service Index (MAY)

--

43.5

Contracts for the fourth straight month.

AUD

01:30

Australia Net Exports of GDP (1Q)

-0.7

-0.5

Weakens for the first time since 3Q 2011.

AUD

01:30

Current Account Balance (Australian Dollar) (1Q)

-14650M

-14892M

Largest deficit since 1Q 2010.

CNY

02:30

China HSBC Services PMI (MAY)

--

54.7

Rises for the second month.

AUD

04:30

Reserve Bank of Australia Rate Decision

3.50%

3.50%

Cuts 25bp, but softens dovish tone.

EUR

07:45

Italian Purchasing Manager Index Services (MAY)

42.0

42.8

Composite contracts for the fourth month, lowest reading since June 2009.

EUR

07:50

French Purchasing Manager Index Services (MAY F)

45.2

45.1

EUR

07:55

German Purchasing Manager Index Services (MAY F)

52.2

51.8

EUR

08:00

Euro-Zone Purchasing Manager Index Composite (MAY F)

45.9

46.0

EUR

08:00

Euro-Zone Purchasing Manager Index Services (MAY F)

46.5

46.7

EUR

09:00

Euro-Zone Retail Sales (MoM) (APR)

-0.1%

-1.0%

Biggest decline since December.

EUR

09:00

Euro-Zone Retail Sales (YoY) (APR)

-1.1%

-2.5%

EUR

10:00

German Factory Orders s.a. (MoM) (APR)

-1.1%

-1.9%

Largest contraction since November 2011.

EUR

10:00

German Factory Orders n.s.a. (YoY) (APR)

-3.8%

-3.8%

CAD

12:30

Building Permits (MoM) (APR)

-1.5%

-5.2%

Weakens for the first time since January.

CAD

13:00

Bank of Canada Rate Decision

1.00%

1.00%

Sees scope to withdraw stimulus.

USD

14:00

ISM Non-Manufacutring Composite (MAY)

53.5

53.7

Rises for the first time since February.

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

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