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Euro Hit by Record-High Unemployment- Dovish ECB on Tap

Euro Hit by Record-High Unemployment- Dovish ECB on Tap

David Song, Strategist
Forex_Euro_Hit_by_Record-High_Unemployment-_Dovish_ECB_on_Tap_body_ScreenShot293.png, Euro Hit by Record-High Unemployment- Dovish ECB on Tap

Talking Points

  • Euro: Unemployment Hits Fresh Record-High Ahead of ECB
  • British Pound: U.K. Consumer Credit Continues to Expand Ahead of BoE

Euro: Unemployment Hits Fresh Record-High Ahead of ECB

The Euro tumbled to an overnight low of 1.2967 as unemployment in the monetary union climbed to a fresh record-high of 12.2% in April, and the single currency may continue to lose ground ahead of the next European Central Bank (ECB) interest rate decision on June 6 as the fundamental developments coming out of the region heightens speculation for additional monetary stimulus.

Indeed, ECB board member Ignazio Visco said the Governing Council ‘stands ready’ to further support the ailing economy as the region remains mired in recession, and the board may continue to push into unchartered territory as the governments operating under the single currency become increasingly reliant on central bank support.

As commercial banks in Europe look to repay another EUR 3.08B of the Long-Term Refinancing Operation, the weakening outlook for private sector credit may prompt an even greater discussion to purchase Asset-Back Securities (ABS) at the central bank, but we may see a growing number of ECB officials also call for a negative-interest rate policy (NIRP) as the prolonged recession threatens price stability.

As a result, we may see a growing rift within the ECB, but the central bank remains poised to further embark on its easing cycle in the second-half of the year as the region struggles to return to growth. In turn, we will maintain a bearish outlook for the EURUSD as it continues to carve a lower top below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, and the ECB rate decision could be the fundamental catalyst to put the head-and-shoulders pattern into play as market participants weigh the outlook for monetary policy.

British Pound: U.K. Consumer Credit Continues to Expand Ahead of BoE

The British Pound pared the decline to 1.5182 as the economic docket dampened bet for more quantitative easing out of the Bank of England (BoE), and the sterling may continue to retrace the decline from earlier this year as the central bank appears to be slowly moving away from its easing cycle.

Although U.K. Mortgage Approvals increased 53.7K in April amid forecasts for a 54.6K print, Consumer Credit expanded another 0.5B during the same period, and we may see private sector lending pick up further throughout the course of the year as the Funding for Lending Scheme continues to work its way through the real economy.

Indeed, the Monetary Policy Committee is widely expected to retain its current policy in June as the U.K. skirts a triple-dip recession, and we may see a growing number of BoE officials adopt a more neutral to hawkish tone for monetary policy as inflation is expected to hold above the 2% target over the policy horizon.

As the GBPUSD carves a higher low above the 1.5000 figure, the near-term rebound should gather pace going into June, and we may see the sterling make another run at the 38.2% Fib from the 2009 low to high around 1.5680 as the BoE appears to be concluding its easing cycle.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

CAD

12:30

8:30

Quarterly Gross Domestic Product Annualized (1Q)

2.1%

0.6%

CAD

12:30

8:30

Gross Domestic Product (MoM) (MAR)

0.1%

0.3%

CAD

12:30

8:30

Gross Domestic Product (YoY) (MAR)

1.5%

1.7%

USD

12:30

8:30

Personal Income (APR)

0.1%

0.2%

USD

12:30

8:30

Personal Spending (APR)

0.1%

0.2%

USD

12:30

8:30

Personal Consumption Expenditure Deflator (MoM)

-0.2%

-0.1%

USD

12:30

8:30

Personal Consumption Expenditure Deflator (YoY) (APR)

0.8%

1.0%

USD

12:30

8:30

Personal Consumption Expenditure Core (MoM) (APR)

0.1%

0.0%

USD

12:30

8:30

Personal Consumption Expenditure Core (YoY) (APR)

1.0%

1.1%

USD

12:45

8:45

Fed's Sandra Pianalto Speaks on Financial Stability

USD

13:00

9:00

NAPM-Milwaukee (MAY)

48.43

USD

13:45

9:45

Chicago Purchasing Manager (MAY)

50.0

49.0

USD

13:55

9:55

U. of Michigan Confidence (MAY F)

83.7

83.7

CNY

1:00

21:00

Purchasing Manager Index Manufacturing (MAY)

49.9

50.6

USD

10:00

6:00

Fed's Kocherlakota Speaks on Labor Markets

--- 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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