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Euro Relief Rally To Be Tamed By Growth Concerns, Dovish ECB

Euro Relief Rally To Be Tamed By Growth Concerns, Dovish ECB

David Song, Strategist

Talking Points

  • Euro: Spain To Implement EUR 65B In Austerity, ECB To Lend To Nine Banks
  • British Pound: Eyes 1.5700 On Range-Bounce Prices, Outlook Hinges On BoE Minutes

Euro: Spain To Implement EUR 65B In Austerity, ECB To Lend To Nine Banks

The Euro advanced to an overnight high of 1.2296 as Spain pledged to implement another EUR 65B austerity program over the next two-and-a-half years, while Prime Minister Mariano Rajoy warned that the region is facing the second worst economic downturn in history as the debt crisis continues to dampen the outlook for the euro-area. Indeed, the increased effort to stem the risk for contagion has certainly helped to prop up market sentiment, but the ongoing turmoil in the financial system continues to cast a bearish outlook for the single-currency as European policy makers struggle to restore investor confidence.

The European Central Bank announced that it will led $5.1B to nine banks over the next seven-days even as financial institutions raised their capital reserves by $116B during the first-half of the year, and we should see the central bank continue to carry out its easing cycle throughout the second-half of the year in an effort to shore up the ailing economy. As the relative strength index on the EURUSD continues to hold above oversold territory, we may see the rebound gather pace over the remainder of the week, but the single currency may struggle to hold its ground as the economic docket continues to highlight the threat for a prolonged economic downturn in Europe. As the ECB is scheduled to release its monthly report tomorrow, we should see the central bank continue to strike a dovish tone for monetary policy, and the fresh batch of central bank rhetoric may fuel bets for another rate cut as President Mario Draghi continues to highlight a weakening outlook for the region.

British Pound: Eyes 1.5700 On Range-Bounce Prices, Outlook Hinges On BoE Minutes

The British Pound advanced to a fresh weekly high of 1.5577 as market participants increased their appetite for risk, and the GBPUSD may continue to retrace the decline from earlier this month as it maintains the sideways price action carried over from June. Indeed, the GBPUSD offers a clean range as market participants wait on the Bank of England Minutes, and we should see the pair continue to trade between 1.5460 – 1.5700 as the economic docket for the U.K. remains fairly light for the remainder of the week. In turn, we should see risk trends heavily influence the sterling over the coming days, and the policy statement on tap for the following week may offer a new directional bias for the GBPUSD as currency traders 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.

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USD

14:00

10:00

Wholesale Inventories (MAY)

0.3%

0.6%

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (JUL 6)

-4270K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (JUL 6)

151K

USD

14:30

10:30

DOE U.S. Distillate Inventory (JUL 6)

-1051K

USD

18:00

14:00

Federal Open Market Committee Meeting Minutes

NZD

22:30

18:30

Business NZ Performance of Manufacturing Index (JUN)

55.7

NZD

22:45

18:45

Food Prices (MoM) (JUN)

0.3%

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