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Euro Falters Amid EU Split On Spanish Bailout, Pound Eyes 1.5600

Euro Falters Amid EU Split On Spanish Bailout, Pound Eyes 1.5600

2012-06-11 13:35:00
David Song, Strategist
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Talking Points

  • Euro: Spain Seeks EUR 100B Bailout, ECB Lending To Portugal Hits Record-High
  • British Pound: Continues To Eye Former Support, Sideways Price Action Ahead
  • U.S. Dollar: Pares Decline As Risk Sentiment Falters, Fed Rhetoric On Tap

Euro: Spain Seeks EUR 100B Bailout, ECB Lending To Portugal Hits Record-High

The Euro tumbled to 1.2527 amid the uncertainties surrounding Spain’s EUR 100B bailout, and the single currency may continue to give back the advance from earlier this month as the EU calls upon the Troika – the European Commission, the European Central Bank and the International Monetary Fund – to carry out the rescue package. In contrast, Spanish Prime Minister Mariano Rajoy argued that the move to recapitalize its banking sector does not constitute a bailout, and we may see the group attempt to buy more time as European policy makers struggle to meet on common ground.

Meanwhile, a separate report by the Bank of Portugal showed commercial banks borrowed a record EUR 58.7B from the European Central Bank, and it seems as though the Governing Council will continue to carry out its easing cycle in 2012 as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support. According to Credit Suisse overnight index swaps, market participants are starting to price in a rate cut for July, but we may see the ECB implement a range of tools to shore up the ailing economy as the heightening risk for contagion continues to drag on investor confidence. As the EURUSD struggles to push back above the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, the pair may continue to track sideways ahead of the elections in Greece, and we will maintain a bearish outlook for the single currency as European policy makers maintain a reactionary approach in addressing the debt crisis.

British Pound: Continues To Eye Former Support, Sideways Price Action Ahead

The British Pound advanced to 1.5581 on Monday as the Bank of England talked down the risks surrounding the U.K. banking system, and the ongoing turmoil in the euro-area may continue to increase the appeal of the sterling as the central bank expects to see a more robust recovery later this year. As a result, we may see the sterling take on a safe-haven role as U.K. policy makers take the necessary steps to shield the economy from the debt crisis, but the GBPUSD may track sideways ahead of the BoE Minutes due out on June 20 as it struggles to clear former support around the 1.5600 figure. In turn, we may see the GBPUSD work its way back towards the 50.0% Fib from the 2009 low to high around 1.5270, but the policy statement may instill a bullish outlook for the pound should we see another 8-1 split within the Monetary Policy Committee.

U.S. Dollar: Pares Decline As Risk Sentiment Falters, Fed Rhetoric On Tap

The greenback is regaining its footing during the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) bouncing back from a low of 10,137, and the reserve currency may appreciate further over the next 24-hours of trading as market participants scale back their appetite for risk. Nevertheless, with the slew of central bank rhetoric on tap for later today, less-dovish comments from Fed officials may further increase the appeal of the USD, and we may see the dollar resume the rally from the previous month as the FOMC moves away from 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.

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Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

GBP

14:15

10:15

BoE's Adam Posen Speaks on U.K. Economy

USD

16:00

12:00

Fed's Dennis Lockhart Speaks on U.S. Economy

USD

16:00

12:00

Fed's John Williams Speaks on U.S. Banking System

USD

22:00

18:00

Fed's Sandra Pianalto Speaks on Improving Educational Attainment

EUR

22:01

18:01

Germany Manpower Survey (3Q)

NZD

22:45

18:45

Card Spending (MoM) (MAY)

0.6%

NZD

22:45

18:45

Card Spending - Retail (MoM) (MAY)

0.8%

Currency

GMT

Release

Expected

Actual

Comments

NZD

22:45

Manufacturing Activity (1Q)

--

-1.8%

Declines for the first time since 2Q 2009.

NZD

22:45

Manufacturing Activity Volume s.a. (QoQ) (1Q)

--

0.7%

JPY

23:50

BSI Large All Industry (QoQ) (2Q)

--

-3.1%

Weakens for the third straight quarter.

JPY

23:50

BSI Large Manufacturing (QoQ) (2Q)

--

-5.7%

JPY

23:50

Japan Money Stock M2+CD (YoY) (MAY)

2.5%

2.1%

Slowest pace of growth since February 2009.

JPY

23:50

Japan Money Stock M3 (YoY) (MAY)

2.2%

1.9%

JPY

5:00

Consumer Confidence (MAY)

39.8

40.7

Highest since February 2011.

JPY

6:00

Machine Tool Orders (YoY) (MAY P)

--

-2.9%

Falls for the first time since February.

EUR

6:45

French Industrial Production (MoM) (APR)

-0.1%

1.5%

Biggest advance since July 2011.

EUR

6:45

French Industrial Production (YoY) (APR)

-0.3%

0.9%

EUR

6:45

French Manufacturing Production (MoM) (APR)

-0.7%

-0.7%

Weakens for the fourth time in 2012.

EUR

6:45

French Manufacturing Production (YoY) (APR)

-0.9%

-1.4%

EUR

8:00

Italian Gross Domestic Product s.a. and w.d.a. (QoQ) (1Q F)

-0.8%

-0.8%

Contracts for the third straight quarter.

EUR

8:00

Italian Gross Domestic Product s.a. and w.d.a. (YoY) (1Q F)

-1.3%

-1.4%

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