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Euro At Risk As Hopes Surrounding EU Summit Fizzle

Euro At Risk As Hopes Surrounding EU Summit Fizzle

David Song, Strategist

Talking Points

  • Euro: Germany Continues To Oppose Euro Bond, All Eyes On EU Summit
  • British Pound: Finds Support Around 10-Day SMA, Sideways Price Action Ahead

Euro: Germany Continues To Oppose Euro Bond, All Eyes On EU Summit

The Euro touched a low of 1.2458 on Wednesday as German Chancellor Angela Merkel continued to voice her opposition for a Euro bond, and the single currency may face additional headwinds over the remainder of the week should the EU Summit disappoint. Indeed, there are a lot of expectations surrounding the meeting in Brussels as the group pushes for further fiscal integration, but there’s little in the way of seeing a major development this week as the governments operating under the fixed-exchange rate system continue to move in their own interest.

In light of the recent developments coming out of the region, easing price pressures in Europe has spurred increased bets that the European Central Bank will deliver a rate cut in the second-half of the year, but we may see the Governing Council implement a range of tools over the coming months as the economy remains at risk for a prolonged recession. Although there’s speculation that more monetary easing from the ECB will prop up the single currency as it alleviate the downside risks for the region, we will maintain our bearish forecast for the EURUSD as the fundamental outlook for the region turns increasingly bleak. As the euro-dollar appears to be carving out a lower top in June, we should see the downward trend carried over from 2011 continue to take shape, and we are looking for fresh yearly lows in the exchange rate as we expect the ECB to carry out its easing cycle throughout the second-half of 2012.

British Pound: Finds Support Around 10-Day SMA, Sideways Price Action Ahead

The British Pound continued to give back the advance from earlier this week as the dismal lending data out of the U.K. fueled speculation for more quantitative easing, but we may see the GBPUSD track sideways over the next 24-hours of trading as it appears to be finding interim support around the 10-Day SMA (1.5630). As the Bank of England looks to further insulate the U.K. economy from the sovereign debt crisis, the Monetary Policy Committee appears to be leaning towards additional asset purchases, but the majority may continue to favor a wait-and-see approach amid the stickiness in underlying inflation. As the GBPUSD struggles to put in a close above the 200-Day SMA (1.5745), we may have a range-trade opportunity in the pair, but dismal developments coming out of Europe may continue to drag on the exchange rate as it dampens the appeal of the sterling.

--- 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

2861K

USD

14:30

10:30

DOE Cushing OK Crude Inventory

360K

USD

14:30

10:30

DOE U.S. Distillate Inventory

1156K

USD

14:30

10:30

DOE U.S. Gasoline Inventories

943K

Currency

GMT

Release

Expected

Actual

Comments

EUR

06:00

German Import Price Index (MoM) (MAY)

-0.6%

-0.7%

Slowest pace of growth since January 2010.

EUR

06:00

German Import Price Index (YoY) (MAY)

2.3%

2.2%

GBP

08:30

BBA Loans for House Purchase (MAY)

33000

30238

Lowest since April 2011.

GBP

10:00

CBI Reported Sales (JUN)

15

42

Highest since December 2010.

USD

11:00

MBA Mortgage Applications (JUN 22)

--

-7.1%

Weakens for the second week.

EUR

12:00

German CPI (MoM) (JUN P)

0.0%

-0.1%

Marks the slowest pace of growth since December 2010.

EUR

12:00

German CPI (YoY) (JUN P)

1.8%

1.7%

EUR

12:00

German CPI - EU Harmonised (MoM) (JUN P)

-0.1%

-0.2%

EUR

12:00

German CPI - EU Harmonised (YoY) (JUN P)

2.1%

2.0%

USD

12:30

Durable Goods Orders (MAY)

0.5%

1.1%

Rises for the second time this year.

USD

12:30

Durables ex Transportation (MAY)

0.7%

0.4%

USD

12:30

Cap Goods Orders Nondef Ex Air (MAY)

1.9%

1.6%

USD

12:30

Cap Goods Ship Nondef Ex Air (MAY)

--

0.4%

USD

14:00

Pending Home Sales (YoY) (MAY)

9.9%

15.3%

Biggest advance since October 2011.

USD

14:00

Pending Home Sales (MoM) (MAY)

1.5%

5.9%

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

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