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FOREX ANALYSIS: Sterling Eyes 1.6300, Euro Succumbs To Greek Fears

FOREX ANALYSIS: Sterling Eyes 1.6300, Euro Succumbs To Greek Fears

David Song, Strategist

Talking Points

  • British Pound: U.K. Emerges From Recession, BoE Strikes Improve Outlook
  • Euro: Private Lending Contracts- Greece To Request More Aid, Time
  • U.S. Dollar: Durable Goods Jump 9.9%, Pending Home Sales On Tap

British Pound: U.K. Emerges From Recession, BoE Strikes Improve Outlook

The British Pound rallied to 1.6142 as the advance U.K. GDP report showed the growth rate expanding 1.0% in the third-quarter, which exceeded forecasts for a 0.6% print, and we should see the GBPUSD make another run at the 1.6300 figure as the data dampens the Bank of England’s scope to expand its balance sheet further.

Prior to the data, BoE board member Charles Bean struck an improved outlook for the region, stating that the economy has ‘past the worst,’ and went onto say that ‘schemes like Funding for Lending should start to make an impact’ on the real economy as the central bank maintains a highly accommodative stance to encourage a stronger recovery. As the U.K. emerges from the double-dip recession, a growing number of BoE officials should scale back their forecast for undershooting the 2% target for inflation, and we should see the Monetary Policy Committee slowly move away from its easing cycle as growth and inflation picks up.

As the rebound from 1.5912 gathers pace, we should see the 23.6% Fibonacci retracement from the 2009 low to high around 1.6200 give way, and we will maintain a bullish forecast for the GBPUSD as the developments coming out of the U.K. dampens the scope for additional monetary support.

Euro: Private Lending Contracts- Greece To Request More Aid, Time

The EURUSD fell back from an overnight high of 1.3021 as a report by the European Central Bank showed private sector lending in the euro-area contracted at the fastest pace since October 2009, and the single currency remains poised to face additional headwinds over the near-term as the debt crisis continues to drag on the real economy.

At the same time, there are reports that Greece will need another loan as well as a two-year extension to meet its budget target as the government struggles to reach a deal with the troika – the EU, ECB and IMF – and the heightening threat for a Greek default is likely to put additional downside pressures on the exchange rate as European policy makers preserve a reactionary approach in addressing the debt crisis.

As the fundamental outlook for the region turns increasingly bleak, we should see the ECB continue to embark on its easing cycle throughout the remainder of the year, and the Governing Council may now look to target the benchmark interest rate in response to deepening recession. Indeed, we are still watching the double-top formation on the EURUSD unfold and we are waiting for a beak and a close below the 200-Day SMA (1.2833) to see a more meaningful move to the downside.

U.S. Dollar: Durable Goods Jump 9.9%, Pending Home Sales On Tap

The greenback appears to be regaining its footing ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) paring the overnight decline to 9,901, and the reserve currency may track higher over the remainder of the week as the fundamental outlook for the world’s largest economy improves.

Indeed, demands for U.S. Durable Goods jumped 9.9% in September amid forecasts for a 7.5% rise, while initial and continuing jobless claims edged lower from the previous week amid the ongoing improvement in the labor market.

As U.S. Pending Home Sales is expected to climb 2.0% in September, another round of positive data may increase the appeal of the greenback, and the dollar may continue to retrace the sharp decline from earlier this year as the FOMC strikes a more neutral tone for monetary policy.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Pending Home Sales (MoM) (SEP)

2.0%

-2.6%

USD

14:00

10:00

Pending Home Sales (YoY) (SEP)

9.6%

USD

15:00

11:00

Kansas City Fed Manufacturing Activity Index (OCT)

5

2

GBP

18:00

14:00

BoE's Andy Haldane Speaks on U.K. Economy

USD

17:00

13:00

||| US Treasury to Sell $29 Bln in 7-Year Notes

NZD

21:45

17:45

Trade Balance (New Zealand dollars) (SEP)

-850M

-789M

NZD

21:45

17:45

Exports (New Zealand dollars) (SEP)

3.30B

3.32B

NZD

21:45

17:45

Imports (New Zealand dollars) (SEP)

4.20B

4.10B

NZD

21:45

17:45

Balance (YTD) (New Zealand dollars) (SEP)

-914M

-866M

--- 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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