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Forex: EUR Euphoria Fizzles Despite Greek Aid- GBP Bucks Trend On BoE

Forex: EUR Euphoria Fizzles Despite Greek Aid- GBP Bucks Trend On BoE

2012-11-27 14:15:00
David Song, Strategist

Talking Points

  • Euro: EU Unveils New Greek Resolution, OECD Calls For ECB Rate Cut
  • British Pound: BoE Changes Tune On Sticky Inflation- 1.6300 In Sight
  • U.S. Dollar: Durable Goods Orders Top Forecast, Fed’s Evans On Tap

Euro: EU Unveils New Greek Resolution, OECD Calls For ECB Rate Cut

The Euro slipped to an overnight low of 1.2934 even as the EU struck a deal to avert a Greek default, and the single currency remains poised to face additional headwinds over the near-term as the debt crisis continues to cast a weakening outlook for the region.

After granting Greece a two-year extension to meet its budget target, the EU agreed to suspending interest payments while easing the bailout terms for the periphery country, and the group also unveiled a bond buyback program for Athens, which is expected to ‘significantly’ lower the region’s future obligations.

Although the short-term resolution helped to a stem the risk of a euro-area breakup, the new relief program may ultimately require the EU to allocate additional recourse to Greece as the group sees a ‘small’ budget in 2015/2016, and we may see the European Central Bank (ECB) come under increased pressure to address the risks surrounding the region as the governments operating under the single currency become increasingly reliant on monetary support.

Indeed, the Organization for Economic Cooperation and Development (OECD) encouraged the ECB to ease monetary policy further as the group sees a growing threat for a ‘major’ downturn in the global economy, and we may see the Governing Council continue to embark on its easing cycle in the following year as euro-area faces a deepening recession.

As the relative strength index on the EURUSD continues to find resistance around the 66 figure, we should see the pair maintain the downward trend carried over from the previous year, and the euro-dollar looks poised to fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as it appears to be caving out a lower top ahead of December.

British Pound: BoE Changes Tune On Sticky Inflation- 1.6300 In Sight

The British Pound advanced to 1.6055 a growing number of Bank of England (BoE) officials scaled back their dovish tone for monetary policy, and the sterling may continue to recoup the losses from earlier this month as the central bank appears to be slowly moving away from its easing cycle.

Although the BoE held a cautious tone while testifying at a Parliament hearing, central bank board member Ben Broadbent saw limited scope to provide additional monetary support as inflation is expected to hold above the 2% over the next two-years, and we may see the central bank start to discuss a tentative exit strategy in 2013 as the U.K. emerges from the double-dip recession.

Indeed, the shift in central bank rhetoric should carry the GBPUSD higher over the remainder of the year, and we may see the pair make another run at the 1.6300 figure as the relative strength index on the pair breaks out of the downward trend from back in September.

U.S. Dollar: Durable Goods Orders Top Forecast, Fed’s Evans On Tap

The greenback regained its footing ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) snapping back from an overnight low of 9,955, and the reserve currency may track higher throughout the remainder of the day as the economic docket encourages an improved outlook for the world’s largest economy.

The U.S. Durable Goods Orders report topped market expectations as demands for large-ticket items held steady in October versus forecasts for a 0.7% contraction, but fresh comments from central bank dove Charles Evans may dampen the appeal of the U.S. dollar as the Chicago Fed President pushes for more quantitative easing.

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Fed's Charles Evans Speaks at Benefactors' Dinner in Canada

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong

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