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Euro Struggles as Spain Scales Back on Austerity, Pound Creeps Higher

Euro Struggles as Spain Scales Back on Austerity, Pound Creeps Higher

David Song, Strategist

Talking Points

  • Euro: Remains Capped By 50-Day SMA, Spain Extends Unemployment Benefits
  • British Pound: U.K. Jobless Claims Top Expectations, BoE Votes 9-0
  • U.S. Dollar: Inflation Slows Further In July, Manufacturing Contracts

Euro: Remains Capped By 50-Day SMA, Spain Extends Unemployment Benefits

The Euro gave back the rebound from earlier this week and slipped to an overnight low of 1.2268 as Spanish Prime Minister Mariano Rajoy scaled back his pledge to address the budget deficit. Indeed, the Spanish government said it will extend long-term unemployment benefits for another six-months as the region faces the highest unemployment within the monetary union, and the move may spur an increased rift in the European Central Bank as a growing number of the Governing Council see the bond purchasing program having a limited impact in addressing the debt crisis.

As ECB President Mario Draghi tries to implement additional measures to support Spain and Italy, the central bank is certainly putting its independence on the line, and it seems as though the Governing Council will implement a range of policy tools over the coming months as the governments operating under the single-currency maintain a reactionary approach in getting their house in order. As the EURUSD continues to carve a lower top around the 50-Day SMA (1.2386), we would like to see a close below the 20-Day SMA (1.2268) for the pair to give back the rebound from July (1.2041), and we anticipate to see fresh yearly lows in the exchange rate as the downward trend from 2011 continues to take shape.

British Pound: U.K. Jobless Claims Top Expectations, BoE Votes 9-0

The British Pound climbed to 1.5699 as jobless claims in the U.K. unexpectedly weakened 5.9K in July, while the Bank of England Minutes showed the Monetary Policy Committee voting unanimously to maintain its current policy in August. Indeed, some members saw a ‘good case’ for additional quantitative easing as the central bank lowered its outlook for growth and inflation, but it seems as the MPC will continue to endorse a wait-and-see approach over the coming months as the Funding for Lending scheme is expected to boost economic activity in the U.K. Nevertheless, it seems as though the GBPUSD will maintain the range-bound price action carried over from June as the pair struggles to put in a close above the 200-Day SMA (1.5716), but we will be keeping a close eye on the short-term moving averages (10, 20 and 50 Day) as they appear to be forming a positive slope.

U.S. Dollar: Inflation Slows Further In July, Manufacturing Contracts

The greenback is losing ground ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) paring the overnight advance to 10,061, and the reserve currency may track lower over the next 24-hours of trading amid the slew of disappointing data coming out of the world’s largest economy. Indeed, the headline reading for U.S. inflation grew at the slowest pace since November 2010, led by easing energy prices, while the Empire Manufacturing index slipped into negative territory for the first time since October 2011. Indeed, the slowdown in growth and inflation has renewed speculation for additional Fed support, but we should see the FOMC continue to move away from its easing cycle as policy makers expect the recovery to gradually gather pace in the coming months. In turn, we will maintain our bullish forecast for the greenback, and we should see the USDOLLAR track higher in the days ahead as it builds a short-term base around the 9,980 figure.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:00

9:00

Net Long-term TIC Flows (JUN)

$55.0B

USD

13:00

9:00

Total Net TIC Flows (JUN)

$101.7B

USD

13:15

9:15

Industrial Production (JUL)

0.5%

0.4%

USD

13:15

9:15

Capacity Utilization (JUL)

79.2%

78.9%

USD

13:15

9:15

Manufacturing Production (SIC) (JUL)

0.7%

USD

14:00

10:00

NAHB Housing Market Index (AUG)

34

35

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (AUG 10)

-3729K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (AUG 10)

-1801K

USD

14:30

10:30

DOE U.S. Distillate Inventory (AUG 10)

-724K

NZD

22:00

18:00

ANZ Job Ads (MoM) (JUL)

-1.4%

NZD

22:30

18:30

Business NZ Performance of Manufacturing Index (JUL)

50.2

--- 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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