Euro Continues to Carve Lower Top- ECB Increasingly Cautious

DailyFX

Talking Points

  • Euro: PMI Contracts at Slower Pace, More ECB Easing Ahead
  • British Pound: U.K. 1Q GDP Expands 0.3%, BoE to Target Inflation
  • U.S. Dollar: Jobless Claims Tops Forecast- House Prices, New Home Sales on Tap

Euro: PMI Contracts at Slower Pace, More ECB Easing Ahead

The Euro advanced to an overnight high of 1.2903 as the purchasing manager index showed manufacturing and service-based activity in Europe contracting at a slower pace in May, but the rebound in the single currency is likely to be short-lived as the region remains mired in recession.

European Central Bank board member Peter Praet said the board is looking ‘at all possibilities’ to shore up the ailing economy as the region struggles to return to growth, while Governing Council member Christian Noyer noted that the central bank is looking to introduce ‘monetary policy instruments that could further reduce fragmentation’ across the monetary union as the governments operating under the single currency struggle to get their house in order.

At the same time, ECB board member Ewald Nowotny warned that there’s little ‘indication that there will be a significant improvement in the economic situation in the short term,’ and warned that ‘we may see worse numbers in the course of the year’ as he sees the economy contracting in 2013.

As a growing number of Governing Council officials turn increasingly cautious on the economy, we should see the ECB push the benchmark interest rate to a fresh record-low in the second-half of the year, and it seems as though the central bank will also introduce more non-standard measures in the coming months in an effort to boost private sector lending.

As the EURUSD retains the range-bound price action from earlier this week, the pair should continue to carve a lower top going into the final days of May, and we should see the head-and-shoulders pattern continue to take shape in June as the ECB retains a dovish tone for monetary policy. In turn, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the EURUSD fail to maintain the rebound from July (1.2041) as European policy makers struggle to address the risks surrounding the region.

British Pound: U.K. 1Q GDP Expands 0.3%, BoE to Target Inflation

The British Pound pared the sharp decline from earlier this week, with the GBPUSD climbing to a high of 1.5093, and the sterling may continue track higher in the days ahead as the fundamental developments coming out of the U.K. dampens speculation for more quantitative easing.

Indeed, the preliminary GDP reading showed the U.K. economy expanding 0.3% in the first quarter, with private sector consumption advancing 0.1%, and it seems as though the Bank of England (BoE) is slowly moving away from its easing cycle as the region skirts a triple-dip recession.

Although the Monetary Policy Committee has ‘had a hard time rebalancing’ the economy, BoE board member Ben Broadbent said that the central bank is focus on achieving the 2% target for inflation, and we may see a growing number of BoE officials scale back their willingness to expand the balance sheet further as price growth is expected to accelerate throughout the course of the year.

As the GBPUSD continues to give back the rebound from back in March (1.4830), we may see the pair develop a broader downward trend in the days ahead, but an upward revision in the preliminary 1Q GDP report may prop up the sterling over the next 24-hours of trading as it dampens bets for more QE.As a result, we may see the GBPUSD carve out a higher low ahead of the next BoE interest rate decision on June 6, and the sterling may outperform against its major counterparts in the second-half of 2013 amid the shift in the policy outlook.

U.S. Dollar: Jobless Claims Tops Forecast- House Prices, New Home Sales on Tap

The greenback lost ground on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)slipping to a low of 10,784, but the reserve currency may track higher during the North American trade as the economic docket is expected to instill an improved outlook for the U.K.

Indeed, U.S. initial and continuing claims both beat market expectations amid the ongoing improvement in employment, and the budding recovery in the housing market may further increase the appeal of greenback as home prices are expected to increase another 0.8% in March, while New Home Sales are projected to rise 1.9% in April.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:00

9:00

House Price Index (MoM) (MAR)

0.8%

0.7%

USD

13:00

9:00

House Price Purchase Index (QoQ) (1Q)

1.4%

USD

14:00

10:00

New Home Sales (APR)

425K

417K

USD

14:00

10:00

New Home Sales (MoM) (APR)

1.9%

1.5%

EUR

14:00

10:00

Euro-Zone Consumer Confidence (MAY A)

-21.8

-22.3

USD

15:00

11:00

Kansas City Fed Manufacturing Activity Index (MAY)

-5

-5

EUR

17:30

13:30

ECB's Jens Weidmann Speaks on Euro Economy

EUR

19:30

15:30

ECB President Mario Draghi Speaks on Euro Economy

--- 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.

Will the EUR/USD Resume the Downward Trend From 2011? Join us in the Forum

Trading the volatile hours of the US open? Use this app to help find breakouts during these market conditions.

RelatedArticles: Weekly Currency Trading Forecast

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

Rates

View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

    CNBC
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

    Bloomberg
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Wondering How You Could Save on Home Insurance?

    Get a quote from Farmers Insurance and discover how you could save. Speak with an agent to get the knowledge you need to make an informed decision.

    AdChoicesFarmers InsuranceSponsored
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Froot Loops® Cereal

    Who Says You Have to be a Kid to Enjoy the Fruity Goodness of Froot Loops? Remember The Sweet Aroma & Fruity Taste with a Bowl of Froot Loops Today!

    AdChoicesKellogg's Froot Loops®Sponsored
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

    CNBC
  • AARP® Auto Insurance Program from The Hartford

    50+? Request a free quote and you could save $404* on Auto Insurance from The Hartford!

    AdChoicesThe HartfordSponsored
  • Play

    Tues., Sept. 16: Watch Humana Stock

    Humana, Global X Social Media Index ETF and Majesco Entertainment are among stocks to watch. WSJ's Chris Dieterich discusses the details with Michael Casey. Photo: Humana

    WSJ Live