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Euro Struggles Ahead Of Moody’s Review, Pound Eyes 1.63 Ahead Of BoE

Euro Struggles Ahead Of Moody’s Review, Pound Eyes 1.63 Ahead Of BoE

David Song, Strategist

Talking Points

  • Euro: Germany Scales Back On Integration, Spain Credit Rating At Risk
  • British Pound: 2Q Growth Tops Forecast, BoE Sees ‘Very Strong’ 3Q GDP

Euro: Germany Scales Back On Integration, Spain Credit Rating At Risk

The EURUSD slipped to an overnight low of 1.2844 as economic confidence in the euro-area slipped to the lowest level since August 2009, while there appears to be a growing rift in Germany as government officials Chancellor Angela Merkel pushes for a banking union.

Indeed, the Christian Democratic Union and the Free Democratic Party said ’banks that pose systemic risks are to be subjected to a stress test and restructured or liquidated at the expense of the national restructuring fund before they are included in the direct supervision mechanism,’ and it seems as though German policy makers are becoming increasingly reluctant to push for further integration as the governments operating under the monetary union struggle to get their house in order.

As Moody’s Investor Services is expected to review Spain’s credit rating on Friday, fears of a potential downgrade may weaken the euro further over the next 24-hours of trading, and we may see the EURUSD threaten the upward trend carried over from the end of July as the EU maintains a more reactionary approach in addressing the debt crisis. As the EURUSD comes up against the 200-Day SMA at 1.2823, the moving average appears to be providing interim support, but we may see the pair fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 should the fundamental outlook for the periphery countries deteriorate further.

British Pound: 2Q Growth Tops Forecast, BoE Sees ‘Very Strong’ 3Q GDP

The British Pound pared the decline from earlier this week as the final GDP report showed the U.K. contracting 0.4% in the second-quarter versus an initial forecast for a 0.5% decline in the growth rate, while business investments unexpectedly increased 0.9% during the same period amid projections for a 1.5% drop.

As the region appears to be emerging from the double-dip recession, Bank of England Markets Direction Paul Fisher said third-quarter GDP will be ‘very strong,’ and we should see the central bank continue to soften its dovish tone for monetary policy amid the ‘stickiness’ in price growth.

As the Monetary Policy Committee is scheduled to meet next week, the central bank is widely expected to maintain its current policy at the rate decision on October 4, but we may see the MPC slowly move away from its easing cycle as the board scales back its forecast for undershooting the 2% target for inflation.

Although the GBPUSD remains poised for a near-term correction, the pair may make another run at the 1.6300 figure as the relative strength index maintains the upward trend from June,

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Pending Home Sales (MoM) (AUG)

0.0%

2.4%

USD

14:00

10:00

Pending Home Sales (YoY) (AUG)

15.0%

USD

15:00

11:00

Kansas City Fed Manufacturing Activity (SEP)

5

8

EUR

17:00

13:00

ECB's Carlos Costa Speaks on Euro Economy

NZD

22:45

18:45

Building Permits (MoM) (AUG)

3.0%

2.0%

EUR

23:00

19:00

Spanish 2013 Budget Due to be Presented to Parliament

GBP

23:01

19:01

GfK Consumer Confidence Survey (SEP)

-28

-29

--- 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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