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Euro Rallies Ahead of 2Q GDP, ECB Policy to Provide Little Relief

Euro Rallies Ahead of 2Q GDP, ECB Policy to Provide Little Relief

David Song, Strategist

Talking Points

  • Euro: Greece GDP Beats Forecast, ECB’s Coene Talks Down Bond Purchases
  • British Pound: BoE Talks Up More QE Ahead Of Meeting Minutes
  • U.S. Dollar: Weighed By Risk-Appetite, Index Continues To Build Base

Euro: Greece GDP Beats Forecast, ECB’s Coene Talks Down Bond Purchases

The Euro advanced to 1.2358 as the advanced GDP report showed Greece contracting 6.2% in the second-quarter versus forecasts for a 7.0% drop in the growth rate, but the rebound in the EURUSD may fail to gather pace as European policy makers struggle to meet on common ground. Indeed, European Central Bank board member Luc Coene argued against the bond purchase program and warned that expanding the balance sheet further will ‘do nothing to resolve the underlying problems’ in Spain and Italy, and it seems as though there’s a growing rift within the Governing Council as the governments operating under the monetary union become increasingly reliant on monetary support.

As the Securities Markets Program comes under increased scrutiny, the ECB may show a greater willingness to target the benchmark interest rate during the September 6 meeting, but the Governing Council may have little choice but to embark on its non-standard measures as the heightening threat for contagion continues to dampen the fundamental outlook for the region. As the economic docket on tap for tomorrow is expected to show the euro-area contracting 0.2% during the three-months through June, the lack of momentum to close above the 50-Day SMA (1.2395) continues to foster a bearish outlook for the EURUSD, and we may see the euro-dollar continue to give back the rebound from July (1.2041) as the pair appears to be carving out a lower top in August.

British Pound: BoE Talks Up More QE Ahead Of Meeting Minutes

The British Pound extended the advance from the previous week amid the rise in risk-taking behavior, but we may see the GBPUSD maintain the range-bound price action carried over from June as the pair fails to put in a close above the 200-Day SMA (1.5720). Nevertheless, Bank of England dove Adam Posen argued that the central bank should go beyond conventional quantitative easing and start purchasing private assets, and the BoE Minutes on tap for later this week may fuel speculation for additional monetary support should the central bank sound increasingly dovish this time around. With the quarterly inflation report out of the way, we’re interested to see the vote count within the Monetary Policy Committee, and we may see an overwhelming majority in favor of maintaining a wait-and-see approach as the Funding for Lending scheme gets underway. In turn, we will continue to watch the 1.5500-1.5750 range over the coming days, but the recent series of higher lows paired with higher highs in the GBPUSD may gather pace should the BoE talk down speculation for more QE.

U.S. Dollar: Weighed By Risk-Appetite, Index Continues To Build Base

The greenback is struggling to hold its ground ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the overnight advance to 10,022, and we may see the reserve currency continue to consolidate over the next 24-hours of trading as the rebound in risk-taking behavior appears to be picking up. As the economic docket for Monday remains fairly light, we should see market sentiment heavily influence the major currencies, but the dollar looks poised for a move higher as the index continues to build a short-term base around the 9,980 figure.

FX Upcoming










ECB Annonces Bond Purchases (SMP)






Retail Sales ex Inflation (QoQ) (2Q)






RICS House Price Balance (JUL)



--- Written by David Song, Currency Analyst

To contact David, e-mail 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

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