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Forex News: Euro Looks Lower on Debt Crisis, Record-Unemployment

Forex News: Euro Looks Lower on Debt Crisis, Record-Unemployment

David Song, Strategist

Talking Points

  • Euro: Moody’s Sees No ‘Short-Term Resolution,’ Spanish Unemployment Hits 25%
  • British Pound: U.K. Mortgage Approvals Top Forecast, BoE Remains Cautious

Euro: Moody’s Sees No ‘Short-Term Resolution,’ Spanish Unemployment Hits 25%

The EURUSD slipped to 1.2885 as an 11% drop in Spanish retail sales dampened the outlook for the euro-area, and the single currency may face additional headwinds over the next 24-hours of trading as the economic docket is expected to show a deepening downturn in the periphery country.

As Spain is expected to contract for the fifth consecutive quarter, the heightening threat for a prolonged recession will continue to dampen the appeal of the Euro, and the European Central Bank may come under additional pressure to expand monetary policy further as the governments operating under the single-currency become increasingly reliant on monetary support.

Indeed, the ECB may have little choice but to push the benchmark interest rate further to a fresh record-low amid the weakening outlook for growth and inflation, and we may see the Governing Council carry its easing cycle into the following year as European policy makers struggle to stem the threat for contagion.

As the relative strength index on the EURUSD slips below interim support around the 50 figure, we should see the double-top formation continue to take shape, the 200-Day SMA (1.2832) may finally give way this week as the downward trend in the oscillator gathers pace.

British Pound: U.K. Mortgage Approvals Top Forecast, BoE Remains Cautious

The British Pound tumbled to a low of 1.6029 on Monday even as U.K. Mortgage Approvals increased 50.0K in September, and the sterling may track lower throughout the North American trade as market participants scale back their appetite for risk.

Indeed, Bank of England board member Charles Bean held a rather cautious outlook for Britain and warned that the region may see ‘weak growth in the next quarter,’ while his colleague Spencer Dale anticipates ‘a very sharp fall back’ in the 4Q growth figures amid the ongoing weakness in the real economy.

However, as central bank officials see the Funding for Lending scheme boosting private sector activity over the coming months, the Monetary Policy Committee should maintain a wait-and-see approach over the remainder of the year, and we should see the shift in the policy outlook continue to prop up the sterling as the BoE sees a diminishing risk of undershooting the 2% target for inflation.

As the shorter-term moving averages (10, 20, and 50-Day) on the GBPUSD start to converge with one another, the flattening slope in the SMA’s certainly points to sideways price action in the exchange rate, and the pound-dollar may continue to consolidate over the near-term as market participants weigh the prospects for future policy.

U.S. Dollar: Benefits From Risk Aversion, Private Consumption Remains Resilient

The greenback pared the decline from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 9,938, and the reserve currency may continue to track higher throughout the North American trade as risk sentiment falters.

Meanwhile, the developments coming out of the world’s largest economy continued to reinforce a bullish outlook for the greenback as personal spending, which remains one of the largest drivers of growth, increased 0.8% versus forecasts for a 0.6% print, and the resilience in private sector consumption certainly limit’s the Fed’s scope to private additional monetary stimulus as the recovery gradually gathers pace.

In turn, we should see the upward trending channel in the USDOLLAR continue to take shape over the near-term, and the index looks poised to move back towards the 10,000 figure as the fundamental outlook for the U.S. continues to improve.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

EUR

13:00

09:00

German Consumer Price Index (YoY)

1.9%

2.0%

EUR

13:00

09:00

German Consumer Price Index - EU Harmonised (MoM)

0.0%

0.0%

EUR

13:00

09:00

German Consumer Price Index - EU Harmonised (YoY)

2.0%

2.1%

USD

14:30

10:30

Dallas Fed Manufacturing Activity

0.00

-0.90

USD

19:00

15:00

US Treasury Issues Quarterly Borrowing Estimate

--- 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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