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Euro Relief Rally Threatened By Greece, Spain- Sterling To Outperform

Euro Relief Rally Threatened By Greece, Spain- Sterling To Outperform

2012-09-25 12:55:00
David Song, Strategist
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Talking Points

  • Euro: ESM To Implement ‘Prudent’ Investments, Greece Continues To Seek Extension
  • British Pound: BoE Strikes Improved Outlook, RSI Sits In Overbought Territory
  • U.S. Dollar: Consumer Confidence, Housing To Improve- Fed’s Plosser In Focus

Euro: ESM To Implement ‘Prudent’ Investments, Greece Continues To Seek Extension

The EURUSD bounced back from an overnight low of 1.2884 amid reports that the European Stability Mechanism, which goes into effect next month, will keep 15% of the EUR 500B lending capacity in ‘assets of the highest creditworthiness,’ while the permanent facility will ‘be implemented in a prudent manner’ as the fund intends to invest in assets beyond government debt. At the same time, Greek Finance Minister Yannis Stournaras argued that the government will not need additional assistance as long as it obtains a two-year extension to meet its budget target, but we may see another debt-restructuring in Greece as the region fails to secure its next bailout payment.

Meanwhile, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said the government needs to know ‘to what extent the ECB will intervene in the secondary market’ as it looks to tap the EUR 100B bank bailout package, and we may see the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support amid the persistent threat for contagion.

As the EURUSD carves out a lower top this month, the short-term correction should get carried into October, and the pair should continue to give back the rebound from 1.2041 as the relative strength index comes off of overbought territory. In turn, we may see the euro-dollar come up against the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2840-50 to test for interim support, but the bearish sentiment surrounding the single currency may spark another run at the 1.2000 figure as European policy makers struggle to restore investor confidence.

British Pound: BoE Strikes Improved Outlook, RSI Sits In Overbought Territory

The British Pound pared the previous day’s decline, with the GBPUSD advancing to 1.6266, and the sterling may continue to outperform against its major counterparts as the Bank of England slowly moves away from its easing cycle.

Indeed, BoE Markets Director Paul Fisher struck an improved outlook for the U.K. as the Funding for Lending scheme is expected to expand private sector credit, and it seems as though the central bank will continue to endorse a neutral policy stance throughout the second-half of the year as the region appears to be emerging from the double-dip recession.

Although the GBPUSD looks poised for a near-term correction, the relative strength index continues to sit in overbought territory, and the oscillator needs to fallback below 70 to see the pullback from 1.6308 gather pace. However, as the RSI maintains the upward trend from June, we may see a fairly muted move to the downside, and the sterling may continue to mark fresh yearly highs amid the shift in the policy outlook.

U.S. Dollar: Consumer Confidence, Housing To Improve- Fed’s Plosser In Focus

The greenback is struggling to hold its ground on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 9,798, and the reserve currency may come under increased pressure during the North American trade as market participants appear to be increasing their appetite for risk.

Nevertheless, as the economic docket is expected to encourage an improved outlook for the U.S., a slew of positive developments may continue to sap bets for additional monetary support, but central bank dove Charles Plosser may talk up speculation for more easing amid the protracted recovery in the labor market.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

EUR

13:00

9:00

ECB President Mario Draghi Speaks on Euro Economy

USD

13:00

9:00

S&P/Case-Shiller Composite-20 s.a. (MoM) (JUL)

0.7%

0.9%

USD

13:00

9:00

S&P/Case-Shiller Composite-20 (YoY) (JUL)

1.1%

0.5%

USD

13:00

9:00

S&P/Case-Shiller Home Price Index (JUL)

142.21

USD

14:00

10:00

Consumer Confidence (SEP)

63.0

60.6

USD

14:00

10:00

Richmond Fed Manufacturing Index (SEP)

-6

-9

USD

14:00

10:00

House Price Index (MoM) (JUL)

0.6%

0.7%

USD

16:00

12:00

Fed's Charles Plosser Speaks on U.S. Economy

CAD

18:15

14:15

BoC's Tim Lane Speaks on Canadian Economy

CHF

22:00

18:00

SNB Chairman Thomas Jordan Speaks on Swiss Economy

NZD

22:45

18:45

Trade Balance (New Zealand dollars) (AUG)

-630M

15M

NZD

22:45

18:45

Balance (YTD) (New Zealand dollars) (AUG)

-760M

-853M

NZD

22:45

18:45

Exports (New Zealand dollars) (AUG)

3.55B

4.00B

NZD

22:45

18:45

Imports (New Zealand dollars) (AUG)

4.10B

3.99B

--- 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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