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Euro to Slide Further Amid Heightening Concerns, Fresh Lows Ahead

Euro to Slide Further Amid Heightening Concerns, Fresh Lows Ahead

2012-08-10 12:10:00
David Song, Strategist
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Talking Points

  • Euro: Spanish Yield Approaches 7%, Fitch Continues To Fire Warnings Shots
  • British Pound: U.K. Construction Contracts At Slower Pace, All Eyes On BoE Minutes

Euro: Spanish Yield Approaches 7%, Fitch Continues To Fire Warnings Shots

The Euro slipped to a fresh weekly low of 1.2259 as the yield tied to Spain’s 10-Year debt once again approached 7%, while Fitch Ratings warned that senior creditors involved in Spanish banks ‘could face potential losses in the case of ultimately non-viable banks.’. At the same time, Germany’s Finance Ministry held a cautious outlook for the region as Europe’s largest economy is expected to grow only ‘moderately’ in the second-quarter, and the weakening outlook for the region continues to cast a bearish outlook for EURUSD as the euro-area faces a deepening recession.

Meanwhile, a report by Bild warned that many banks in the euro-area are not passing along the European Central Bank’s rate cut as lenders kept the rate on overdraft charges unchanged, and we anticipate to see the central bank take additional steps to shore up the ailing economy as the outlook for growth and inflation deteriorates. As the EURUSD gives back the advance from earlier this month, we should see the downward trend carried over from 2011 continue to take shape, and the pair looks poised for fresh yearly lows as it carves out a lower high around the 1.2400 figure.

British Pound: U.K. Construction Contracts At Slower Pace, All Eyes On BoE Minutes

The British Pound pared the overnight decline to 1.5577 as data out of London’s National Statistics office highlighted an improved outlook for the U.K., and the GBPUSD may threaten the range-bounce price action carried over from June as it carves out a series of higher highs paired with higher lows. Indeed, construction in the U.K. slipped 3.9% in the second quarter amid an initial forecast for a 5.2% drop, and the upward revision may help to prop up the GDP figure as the advanced reading showed a 0.7% contraction in growth. Nevertheless, it seems as though the Bank of England will maintain a cautious outlook for the region as European policy makers struggle to address the sovereign debt crisis, but we may see the central bank maintain its current policy over the medium-term as its new lending facility gets underway. As market participants look towards the BoE Minutes on tap for the following week, we should see the GBPUSD continue to track sideways over the coming days, and we will need to see the central bank talk down speculation for additional monetary to see the an upward trend take shape.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

18:00

14:00

Monthly Budget Statement (JUL)

-$103.0B

-$59.7

--- 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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