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Euro Eyes 2012 Lows Ahead Of EU Summit, Sterling Weighed By BoE

Euro Eyes 2012 Lows Ahead Of EU Summit, Sterling Weighed By BoE

David Song, Strategist

Talking Points

  • Euro: EU Makes Greater Push For Fiscal Integration Ahead Of Summit
  • British Pound: BoE Governor King Looks At More QE On Euro-Area Risk
  • U.S. Dollar: Richmond Fed Manufacturing, Consumer Confidence Disappoints

Euro: EU Makes Greater Push For Fiscal Integration Ahead Of Summit

The Euro slipped to a low of 1.2454 even as European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and Euro Group President Jean-Claude Juncker laid out a tentative framework to foster a tighter-knit fiscal and banking union, and the single currency may face additional headwinds over the next 24-hours of trading should the summit in Brussels disappoint. Indeed, the EU may struggle to meet on common ground as the governments operating under the fixed-exchange rate system continue to act in their own interest, and heightening finance costs across the periphery countries may continue to drag on investor confidence as the group maintains a reactionary approach in addressing the debt crisis.

As we don’t expect to see much coming out of the meeting, we will maintain our bearish outlook for the EURUSD, and the pair may continue to give back the rebound from 1.2287 as the fundamental outlook for the region turns increasingly bleak. According to Credit Suisse overnight index swaps, market participants are now pricing a 44% chance for a 25bp rate cut at the July 5th meeting, but the European Central Bank may have little choice but to implement a range of tools to shore up the ailing economy as the region continues to face a risk for a prolonged recession. In turn, it seems as though the EURUSD has carved out a short-term top in June, and we anticipate to see fresh yearly lows in the exchange rate as the downward trend carried over from 2011 continues to take shape.

British Pound: BoE Governor King Looks At More QE On Euro-Area Risk

The British Pound pared the overnight advance to 1.5650 as Bank of England Governor Mervyn King continue to talk up speculation for more monetary easing, and currency traders may become increasingly bearish against the GBPUSD as the Monetary Policy Committee shows a greater willingness to expand the asset purchase program beyond the GBP 325B target. As uncertainties surrounding the euro-area dampen the outlook for the U.K., Governor King may sound increasingly dovish throughout the second-half of the year, and the GBPUSD may give back the rebound from 1.5268 as it appears to be carving out a short-term top ahead of July. In turn, we may see the pound-dollar fall back towards the 50.0% Fibonacci retracement from the 2009 low to high around 1.5270, but the pair may track sideways in the month ahead should the majority of the MPC stick to its current policy.

U.S. Dollar: Richmond Fed Manufacturing, Consumer Confidence Disappoints

The greenback is regaining its footing going into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) bouncing back from a low of 10,132, and the reserve currency may track higher over the next 24-hours of trading as the flight to safety picks up. However, the slowdown in manufacturing paired with the drop in household sentiment appears to be dampening the appeal of the greenback as the Federal Reserve keeps the door open to expand policy further, but we should see the central bank refrain from conducting another round of quantitative easing as the recovery gradually gathers pace. In turn, we remain bullish against the USD, and headlines coming out of Europe may continue to prop up the reserve currency as risk-trends continue to dictate price action across the FX market.

--- 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

16:00

12:00

French Jobseekers - Net Change (MAY)

10.00

4.30

EUR

16:00

12:00

French Total Jobseekers (MAY)

2894.9K

2888.8K

NZD

22:45

18:45

Trade Balance (New Zealand dollars) (MAY)

300M

355M

NZD

22:45

18:45

Exports (New Zealand dollars) (MAY)

4.06B

3.89B

NZD

22:45

18:45

Imports (New Zealand dollars) (MAY)

3.80B

3.53B

NZD

22:45

18:45

Balance (YTD) (New Zealand dollars) (MAY)

-790M

-541M

Currency

GMT

Release

Expected

Actual

Comments

JPY

05:07

Small Business Confidence (JUN)

--

46.2

Lowest since February.

EUR

06:00

German GfK Consumer Confidence Survey (JUL)

5.6

5.8

Highest since April.

CHF

06:00

UBS Consumption Indicator (MAY)

--

1.05

Lowest since February.

EUR

06:45

French Consumer Confidence Indicator (JUN)

89

90

Holds steady for second month.

EUR

08:00

Italian Retail Sales (YoY) (APR)

-0.1%

-6.8%

Biggest decline since July 2004.

EUR

08:00

Italian Retail Sales s.a. (MoM) (APR)

-0.6%

-1.6%

GBP

08:30

Public Finances (PSNCR) (Pounds) (MAY)

4.0B

-4.4B

Largest public borrowing since March.

GBP

08:30

PSNB ex Interventions(MAY)

14.8B

17.9B

GBP

08:30

Public Sector Net Borrowing (Pounds) (MAY)

14.0B

15.6B

EUR

09:00

Italian Hourly Wages (YoY) (MAY)

--

1.4%

Holds flat for the third time this year.

EUR

09:00

Italian Hourly Wages (MoM) (MAY)

--

0.0%

USD

13:00

S&P/CS 20 City s.a. (MoM) (APR)

0.30%

0.67%

Rises for the third consecutive month.

USD

13:00

S&P/Case-Shiller Composite-20 (YoY) (APR)

-2.50%

-1.90%

USD

13:00

S&P/Case-Shiller Home Price Index (APR)

134.90

135.80

USD

14:00

Consumer Confidence (JUN)

63.0

62.0

Lowest since January.

USD

14:00

Richmond Fed Manufacturing Index (JUN)

2

-3

First negative print since October.

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

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