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Euro Eyes Fresh 2012 Lows On ECB, Pound Holds Range Despite More QE

Euro Eyes Fresh 2012 Lows On ECB, Pound Holds Range Despite More QE

David Song, Strategist

Talking Points

  • Euro: ECB Cuts Rate To 0.75%, Strikes Dovish Tone For Monetary Policy
  • British Pound: BoE Expands QE By GBP 50B, Range Still Intact
  • U.S. Dollar: ADP Employment Tops Forecast, NFPs In Focus

Euro: ECB Cuts Rate To 0.75%, Strikes Dovish Tone For Monetary Policy

The EURUSD slipped to a fresh monthly low of 1.2375 as the ECB lowered the benchmark interest rate to 0.75% while pushing down the deposit rate to zero, and it seems as though the central bank will keep the door open to expand monetary policy further as growth and inflation falter. As the ECB sees price growth falling below the 2% target, the central bank may implement a series of rate cuts in the coming months, and market participants may raise bets for a zero interest rate policy as the Governing Council maintains its one and only mandate to ensure price stability.

At the same time, the central bank may have little choice but to further embark on its non-standard measures as the governments operating under the fixed-exchange rate system continue to face heightening borrowing costs, and the council may look at additional asset purchases in an effort to tackle the growing threat for contagion. As the EURUSD carves out a lower top around the 1.2745 figure, we should see the pair continue to give back the rebound from June (1.2287), and the euro-dollar looks poised for fresh yearly lows as the fundamental outlook for the region turns increasingly bleak.

British Pound: BoE Expands QE By GBP 50B, Range Still Intact

The Bank of England interest rate decision propped up the British Pound as the central bank increased its effort to further shield the U.K. economy, but we may see the GBPUSD continue to face range-bound price action over the near-term as the Monetary Policy Committee keeps its easing cycle under review. Indeed, the BoE widened its asset purchase target by GBP 50B to GBP 375B as the slowing recovery raises the risk of undershooting the 2% target for inflation, and it seems as though the MPC will keep the door open to expand policy further in order to encourage a sustainable recovery. However, as market participants look towards the BoE Minutes due out on July 18, we may see the GBPUSD maintain the range-bounce price action carried over from the previous month, and the pair may move back towards the 1.5700 figure as it continues to find interim support around 1.5500.

U.S. Dollar: ADP Employment Tops Forecast, NFPs In Focus

The greenback continued to track higher on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 10,155, and the reserve currency may appreciate further during the North American trade as market participants scale back their appetite for risk. As the highly anticipated U.S. Non-Farm Payrolls report comes into focus, we may see the dollar consolidate over the next 24-hours of trading, but the better-than-expected ADP print certainly bodes well for the labor market as employment gradually gathers pace. Beyond the headline figure, we will also be keeping a close eye on the jobless rate as discouraged workers leave the labor force, and the fresh batch of data may set the tone for the rest of the month as market participants weigh the outlook for monetary policy.

--- 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

ISM Non-Manufacutring Composite (JUN)

53.0

53.7

AUD

23:30

19:30

AiG Performance of Construction Index (JUN)

34.7

Currency

GMT

Release

Expected

Actual

Comments

AUD

1:30

Trade Balance (Australian dollar) (MAY)

-500M

-285M

Marks the fifth deficit for 2012.

JPY

2:00

Tokyo Average Office Vacancies (JUN)

--

9.43

Highest since the series began in 1990.

EUR

10:00

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

0.0%

0.6%

Rises for the third time in 2012.

EUR

10:00

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

-6.0%

-5.4%

USD

11:00

MBA Mortgage Applications (JUN 29)

--

-6.7%

Declines for the third week.

GBP

11:00

Bank of England Asset Purchase Target

375B

375B

Expands QE on debt crisis, slowing recovery.

GBP

11:00

Bank of England Interest Rate Decision

0.50%

0.50%

USD

11:30

Challenger Job Cuts (YoY) (JUN)

--

-9.4%

First decline since March.

EUR

11:45

European Central Bank Intereset Rate Decision

0.75%

0.75%

Cuts rate, keeps door open for more easing.

USD

12:15

ADP Employment Change (JUN)

100K

176K

Highest since March.

USD

12:30

Initial Jobless Claims (JUN 30)

385K

374K

Holds at the lowest levels since 2008.

USD

12:30

Continuing Claims (JUN 23)

3305K

3306K

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

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