Euro Weighed by Growth Concerns, Dovish ECB- Carves H&S Top

David Song
April 19, 2013

Talking Points

  • Euro: ECB Sounds More Dovish, Bundesbank Warns of Slow Recovery
  • British Pound: Finds Interim Support Around 1.5200- Range Bound Prices Ahead
  • U.S. Dollar: Index Hits Fresh 2013 High, Existing Home Sales on Tap

Euro: ECB Sounds More Dovish, Bundesbank Warns of Slow Recovery

The Euro weakened to 1.3030 as European Central Bank (ECB) officials struck a dovish tone for monetary policy, while the Bundesbank warned of a protracted recovery in Europe’s largest economy as the region struggles to return to growth.

Governing Council member Klaas Knot said the central bank still has ‘conventional and unconventional’ at its disposal as the ‘latest round of forecasts the data coming in have shown that the risks are on the downside,’ while ECB Vice President Vitor Constancio warned that a rate cut is ‘always a possibility’ as the persistent slack in the real economy continues to threaten price stability.

As the governments operating under the single currency become increasingly reliant on monetary support, Bundesbank President Jens Weidmann argued that monetary policy must focus on price stability, and argued that the ECB needs other tools to address the risks to financial stability as European policy makers maintain a reactionary approach in addressing the debt/banking crisis.

As the EURUSD continues to carve a lower top around the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, we may see a head-and-shoulders take shape ahead of the next ECB interest rate decision on May 2, and the euro-dollar may ultimately give back the rebound from back in November (1.2659) as the euro-area struggles to emerge from the recession.

British Pound: Finds Interim Support Around 1.5200- Range Bound Prices Ahead

The British Pound managed to preserve the range-bound price action from earlier this week, with the GBPUSD bouncing back from a low of 1.5203, and the sterling may continue to consolidate ahead of the 1Q GDP report as the U.K. is expected to return to growth.

As Bank of England (BoE) board member Paul Tucker is scheduled to speak later today, the central bank may strike a rather neutral tone for the region as the Monetary Policy Committee sticks to its wait-and-see approach, and we may see the central bank slowly move away from its easing cycle as it sees a slow but sustainable recovery in the U.K.

As the GBPUSD appears to be finding interim support around the 1.5200 region, we may see the pair make another run at the 1.5400 figure, but we may see the British Pound continue to recoup the losses from earlier this year should the growth report heighten the outlook for inflation.

U.S. Dollar: Index Hits Fresh 2013 High, Existing Home Sales on Tap

The greenback extended the advance from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)climbing to a fresh yearly high of 10,579, and the reserve currency may continue to gain ground during the North American trade as the fundamental outlook for the world’s largest economy improves.

Indeed, existing home sales in the U.S. are projected to increase another 0.4% during the month of March, and the budding recovery in housing may heighten the bullish sentiment surrounding the dollar as it dampens the Fed’s scope to expand the balance sheet further.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

EUR

14:00

10:00

Euro-Zone Consumer Confidence (APR A)

-24.0

-23.5

USD

14:00

10:00

Existing Home Sales (MAR)

5.00M

4.98M

USD

14:00

10:00

Existing Home Sales (MoM) (MAR)

0.4%

0.8%

EUR

17:00

13:00

ECB's Christian Noyer Speaks on Euro Economy

GBP

18:30

14:30

BoE's Paul Tucker Speaks on U.K. Economy

EUR

23:00

19:00

Dutch Parliament Votes on Cyprus Aid Package

EUR

23:00

19:00

Bank of Portugal Releases Bank Lending Survey

--- 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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