Euro Continues to Search for Support- Pound Carving Higher Low

DailyFX

Talking Points

  • Euro: EZ Posts Record Trade Surplus- ECB Can Only Buy Time
  • British Pound: Caves Higher Low Ahead of BoE Minutes

Euro: EZ Posts Record Trade Surplus- ECB Can Only Buy Time

The Euro bounced back from an overnight low of 1.2845 as the monetary union posted a record trade surplus of EUR 18.7B in March, but the rebound in the single currency may be short-lived as European policy makers maintain a reactionary approach in addressing the risks surrounding the region.

Indeed, EU Commission President Jose Manuel Barroso took a shot at Germany and said Europe’s largest economy must contribute to the rebalancing of the euro-area as the EU struggles to make progress on the banking union, while German Finance Minister Wolfgang Schaeuble argued that the European Central Bank (ECB) can only buy time for the monetary union as the periphery countries become increasingly reliant on monetary support.

As governments operating under the monetary union scale back their push for austerity, we should see the ECB continue to embark on its easing cycle over the coming months, and President Mario Draghi may implement further non-standard measures paired with negative interest rates as the region struggles to return to growth.

As the head-and-shoulders formation in the EURUSD continues to pan out, 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 will maintain a bearish outlook for the single currency as the outlook for growth and inflation in Europe remains weak.

British Pound: Caves Higher Low Ahead of BoE Minutes

The British Pound appears to be carving out a higher low as the GBPUSD bounces back from a low 1.5196, and the sterling may continue to track higher ahead of the Bank of England (BoE) Minutes on tap for May 22 as market participants scale back bets for more quantitative easing.

As the BoE raises its growth forecast for the U.K., we may see a growing number of central bank officials adopt a more neutral to hawkish tone for monetary policy, and the board may slowly move away from its easing cycle in the second-half of the year as they see a modest and sustainable recovery in Britain.

Although the GBPUSD has failed to maintain the ascending channel carried over from the previous month, the shift in the policy outlook continues to cast a bullish outlook for the sterling, and the British Pound remains poised to retrace the decline from earlier this year as the BoE looks to switch gears later this year.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

CAD

12:30

8:30

International Securities Transactions (Canadian dollar) (MAR)

-6.31B

USD

12:30

8:30

Consumer Price Index (MoM) (APR)

-0.3%

-0.2%

USD

12:30

8:30

Consumer Price Index (YoY) (APR)

1.3%

1.5%

USD

12:30

8:30

Consumer Price Index ex Food & Energy (MoM) (APR)

0.2%

0.1%

USD

12:30

8:30

Consumer Price Index ex Food & Energy (YoY) (APR)

1.8%

1.9%

USD

12:30

8:30

Consumer Price Index n.s.a. (APR)

232.7

232.773

USD

12:30

8:30

Consumer Price Index Core Index s.a. (APR)

232.758

USD

12:30

8:30

Initial Jobless Claims (MAY 11)

330K

323K

USD

12:30

8:30

Continuing Claims (MAY 4)

3003K

3005K

USD

12:30

8:30

Housing Starts (APR)

980K

1036K

USD

12:30

8:30

Housing Starts (MoM) (APR)

-5.4%

7.0%

USD

12:30

8:30

Building Permits (APR)

940K

902K

USD

12:30

8:30

Building Permits (MoM) (APR)

3.6%

-3.9%

USD

13:00

9:00

Fed's Richard Fisher Speaks on U.S. Economy, Monetary Policy

EUR

13:30

9:30

ECB's Peter Praet Speaks on Euro Economy

EUR

14:00

10:00

ECB's Erkki Liikanen Speaks on Euro Economy

USD

14:00

10:00

Philadelphia Fed Survey (MAY)

2.3

1.3

CAD

14:30

10:30

Bank of Canada Publishes Quarterly Review

USD

19:05

15:05

Fed's John Williams Speaks on Monetary Policy

--- 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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