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Forex_Euro_Weighed_by_Growth_Concerns-_U.K._CPI_to_Prop_Up_Sterling_body_ScreenShot058.png, Euro Weighed by Growth Concerns- U.K. CPI to Prop Up Sterling

Talking Points

  • Euro: Trade Surplus Narrows, Bundesbank Sees Slower Growth
  • British Pound: U.K. Inflation to Accelerate Ahead of BoE Minutes
  • U.S. Dollar: Empire Manufacturing Tops Forecast, NAHB on Tap

Euro: Trade Surplus Narrows, Bundesbank Sees Slower Growth

The EURUSD fell back from an overnight high of 1.3356 as the euro-area’s trade surplus narrowed to 16.1B from a revised 18.1B in March, while the Bundesbank warned that ‘signs of a slowdown in growth are emerging’ amid the protracted recovery in the euro-area.

As the periphery countries struggle to get their house in order, the European Central Bank (ECB) may come under increased pressure to implement more non-standard measures over the coming months, and we may see a growing number of central bank officials support a negative interest rate policy (NIRP) as the region struggles to return to growth.

As the ongoing weakness in the real economy threatens price stability, we should see ECB President Mario Draghi sound more dovish in the second-half of the year, and we may see the single currency change course as the fundamental outlook for the region turns increasingly bleak.

Although the EURUSD appears to be trading within an ascending channel, the pair looks poised for a near-term correction as the relative strength index comes back from overbought territory, and we may see the euro-dollar struggle to maintain the bullish trend should the ECB continue to take unprecedented measures to shore up the governments operating under the monetary union.

British Pound: U.K. Inflation to Accelerate Ahead of BoE Minutes

The British Pound extended the advance from the previous week, with the GBPUSD climbing to a fresh monthly high of 1.5735, and the sterling may appreciate further over the next 24-hours of trading as the economic docket is expected to show heightening price pressures in Britain.

Indeed, the headline reading for U.K. inflation is expected to increase an annualized 2.6% in May after expanding 2.4% the month prior, while core consumer prices are projected to climb 2.1% from 2.0% during the same period.

As the Bank of England (BoE) sees above-target inflation over the policy horizon, we should see the central bank retain its wait-and-see approach in the coming months, and the BoE Minutes may show the Monetary Policy Committee slowly moving away from its easing cycle as the region skirts a triple-dip recession.

Although we’re seeing the relative strength index on the GBPUSD come up against overbought territory, the fundamental developments coming out of the U.K. may prop up the sterling ahead of the policy statement, and we may see the pound-dollar make a run at the 100% Fibonacci expansion from the March advance around 1.5780-90 should we see stronger price growth in Britain.

U.S. Dollar: Empire Manufacturing Tops Forecast, NAHB on Tap

The greenback pared the sharp decline from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 10,504, and the reserve currency may continue to gain ground during the North American trade as the fundamental developments coming out of the world’s largest economy instills an improved outlook for growth.

Indeed, the Empire Manufacturing survey advanced to 7.84 from -1.43 in April amid forecasts for a 0.00 print, while the NAHB Housing Market index is expected to increase to 45 in June, which would be the highest reading since February. In turn, we may see the USD track higher ahead of the FOMC interest rate decision on June 19, and the central bank may sound more upbeat this time around as the recovery gradually gathers pace.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

NAHB Housing Market Index (JUN)

45

44

EUR

15:10

11:10

ECB's Jens Weidmann Speaks on Euro Economy

EUR

16:30

12:30

ECB's Yves Mersch Speaks on Euro Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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