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USD Rebounds Ahead Of Fed’s Beige Book, Euro Eyes Fresh 2012 Lows

USD Rebounds Ahead Of Fed’s Beige Book, Euro Eyes Fresh 2012 Lows

2012-07-18 12:40:00
David Song, Strategist
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Talking Points

  • U.S. Dollar: Bernanke Testimony, Fed’s Beige Book On Tap
  • Euro: Merkel Says More Needs To Be Done, Greece To Pass More Austerity
  • British Pound: BoE Votes 7-2, Sees Scope For Lower Interest Rate

U.S. Dollar: Bernanke Testimony, Fed’s Beige Book On Tap

The greenback firmed up on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) climbing to an overnight high of 10,128, and the reserve currency may track higher during the North American trade as Fed Chairman Ben Bernanke endorses a wait-and-see approach. Although the central bank head is scheduled to testify in front of the House Financial Services Committee later today, we’re not expecting to hear any major developments in light of the prepared remarks, and we will be looking forward to the Fed’s Beige Book as policy makers try to combat the slowing recovery.

As the world’s largest economy gets on a more sustainable path, the Fed’s survey may dampen expectations for another round of quantitative easing, but the report may continue to highlight the ongoing slack in private sector activity as the outlook for global growth deteriorates. Nevertheless, we should see the FOMC stick to its current policy throughout the second-half of the year as the committee continues to embark on ‘Operation Twist,’ and we should see the central bank refrain from expanding its balance sheet further as economic activity gradually gathers pace.

Euro: Merkel Says More Needs To Be Done, Greece Looks At EUR 11.5B In Austerity

The Euro pared the advance from earlier this week as German Chancellor Angela Merkel said more needs to be done to ensure the survival of the monetary union, while Greece is struggling to pass another EUR 11.5B in austerity as the region faces a deepening recession. As European policy makers maintain a reactionary approach in addressing the debt crisis, European Central Bank board member Joerg Asmussen said it’s imperative for Germany’s highest court to approve the permanent bailout fund, and encouraged Europe’s largest economy to implement its own economic reforms amid the push for greater fiscal integration. As the fundamental outlook for the euro-area turns increasingly bleak, we should see the ECB carry out its easing cycle throughout the second-half of the year, and the Governing Council may move towards a zero-interest rate policy (ZIRP) as the region faces a growing threat for a prolonged recession. As the EURUSD pulls back from the 10-Day SMA (1.2271), heightening fears surrounding the euro-area may produce fresh yearly lows in the exchange rate, and we will maintain a bearish forecast for the pair as the relative strength index maintains the downward trend carried over from the end of February.

British Pound: BoE Votes 7-2, Sees Scope For Lower Interest Rate

The British Pound struggled to hold its ground on Wednesday as the Bank of England voted 7-2 to expand the Asset Purchase Facility to EUR 375B, while the central bank talked up speculation for lower borrowing costs in the U.K. as the region remains in a technical recession. As the sovereign debt crisis dampens the fundamental outlook for Britain, we may see the Monetary Policy Committee continue to endorse its easing cycle, but the central bank may revert back to its wait-and-see approach as the ‘Funding for Lending Scheme’ is expected to boost private sector activity. As the GBPUSD maintains the range-bounce price action carried over from the previous month, we should see the pair track sideways over the remainder of the week, but positive developments coming out of the region may spark another run at the 100-Day SMA (1.5790) as market participants weigh the prospects for future 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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FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Fed's Bernanke Delivers Monetary Policy Report to House

CAD

14:30

10:30

Bank of Canada Monetary Policy Report

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (JUL 13)

-4696K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (JUL 13)

2752K

USD

14:30

10:30

DOE U.S. Distillate Inventory (JUL 13)

3112K

USD

18:00

14:00

Fed's Beige Book

EUR

22:00

18:00

Italy's Chamber of Deputies Votes to Approve ESM, Fiscal Pact

NZD

22:00

18:00

ANZ Job Ads (MoM) (JUN)

3.30%

Currency

GMT

Release

Expected

Actual

Comments

AUD

0:30

Westpac Leading Index (MoM) (MAY)

--

0.8%

Largest advance since March 2010.

JPY

4:00

Tokyo Condominium Sales (YoY) (JUN)

--

16.4%

Rises for the fourth time this year.

JPY

6:00

Machine Tool Orders (YoY) (JUN F)

--

-15.5%

Biggest decline since October 2009.

GBP

8:30

Jobless Claims Change (JUN)

5.5K

6.1K

Rises for the second month, lowest jobless rate since August.

GBP

8:30

Claimant Count Rate (JUN)

4.9%

4.9%

GBP

8:30

ILO Unemployment Rate (3M) (MAY)

8.2%

8.1%

GBP

8:30

Average Weekly Earnings inc Bonus (3MoY) (MAY)

1.4%

1.5%

Fastest pace of growth since December.

GBP

8:30

Average Weekly Earnings ex Bonus (3MoY) (MAY)

1.9%

1.8%

GBP

8:30

Employment Change (3M/3M) (MAY)

120K

181K

Highest since July 2010.

EUR

9:00

Euro-Zone Construction Output s.a. (MoM) (MAY)

--

0.1%

Rises for the second time this year.

EUR

9:00

Euro-Zone Construction Output w.d.a. (YoY) (MAY)

--

-8.4%

CHF

9:00

ZEW Survey (Expectations) (JUL)

--

-42.5

First rise since April.

EUR

9:00

Italian Current Account (euros) (MAY)

--

-1199M

Biggest shortfall since March.

USD

11:00

MBA Mortgage Applications (JUL 13)

--

16.9%

Largest rise since June.

USD

12:30

Housing Starts (JUN)

745K

760K

Highest since October 2008.

USD

12:30

Housing Starts (MoM) (JUN)

5.2%

6.9%

USD

12:30

Building Permits (JUN)

765K

755K

Declines for the third time this year.

USD

12:30

Building Permits (MoM) (JUN)

-2.4%

-3.7%

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