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Euro Threatens Range On Further Aid For Spain, BoE To Prop Up Pound

Euro Threatens Range On Further Aid For Spain, BoE To Prop Up Pound

David Song, Strategist

Talking Points

  • Euro: Germany Sees Precautionary Credit Line For Spain
  • British Pound: U.K. Inflation Cools, BoE Minutes In Focus

Euro: Germany Sees Precautionary Credit Line For Spain

The Euro advanced to 1.3048 as Germany policy makers floated the idea of a precautionary credit line for Spain on top of the EUR 100B bank bailout, while European Central Bank board member Josef Bonnici encouraged Spain to seek assistance before the government is ‘put to the test by the markets.’

Indeed, it seems as though the EU is increasing its efforts to address the debt crisis ahead of the summit on tap for later this week, but the meeting may do little to restore investor confidence as Greece continues to look for a two-year extension to meet its budget target. At the same time, we may see growing opposition for another debt restructuring in Greece as the region struggles to secure its next bailout payment, and the single currency is likely to face additional headwinds over the near-term as European policy makers fail to restore investor confidence.

As the EURUSD maintains the range-bounce price action from the beginning of the month, we may see the pair continue to consolidate ahead of the EU Summit, but we will maintain our bearish forecast for the pair as it appears to be making another failed run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120.

British Pound: U.K. Inflation Cools, BoE Minutes In Focus

The British Pound extended the advance from the previous week, with the GBPUSD climbing to a high of 1.6120, and the sterling may continue to retrace the decline from earlier this month as the Bank of England slowly moves away from its easing cycle.

Although the headline reading for U.K. inflation eased to 2.2% in September, the Bank of England Minutes on tap for Wednesday may sound more hawkish this time around as the central bank scales back its forecast for undershooting the 2% target for price growth. As the region appears to be emerging from the double-dip recession, the policy statement may strike an improved outlook for the region, and the fresh batch of central bank rhetoric may prop up the British Pound should the Monetary Policy Committee talk down speculation for more quantitative easing.

As the relative strength index continues to come off of support (43), the GBPUSD looks poised for another run at the 23.6% Fib from the 2009 low to high around 1.6200, but we will retain a bullish outlook for the pair amid the shift in the policy outlook.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

CAD

12:30

8:30

International Securities Transactions (Canadian dollar) (AUG)

8.50B

6.67B

CAD

12:30

8:30

Manufacturing Shipments (MoM) (AUG)

0.5%

-1.5%

USD

12:30

8:30

Consumer Price Index (MoM) (SEP)

0.5%

0.6%

USD

12:30

8:30

Consumer Price Index (YoY) (SEP)

1.8%

1.7%

USD

12:30

8:30

Consumer Price Index Ex Food & Energy (MoM) (SEP)

0.2%

0.1%

USD

12:30

8:30

Consumer Price Index Ex Food & Energy (YoY) (SEP)

2.0%

1.9%

USD

12:30

8:30

Consumer Price Index n.s.a. (SEP)

231.370

230.379

USD

12:30

8:30

Consumer Price Index Core Index s.a. (SEP)

230.244

USD

13:00

9:00

Net Long-term TIC Flows (AUG)

$67.0B

USD

13:00

9:00

Total Net TIC Flows (AUG)

$73.7B

USD

13:15

9:15

Industrial Production (SEP)

0.2%

-1.2%

USD

13:15

9:15

Capacity Utilization (SEP)

78.3%

78.2%

USD

13:15

9:15

Manufacturing Production (SIC) (SEP)

-0.7%

USD

14:00

10:00

NAHB Housing Market Index (OCT)

41

40

USD

16:00

12:00

Fed's Sarah Bloom Raskin Speaks on Financial Regulation

USD

16:00

12:00

Fed's Dennis Lockhart Speaks on U.S. Economy

--- 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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