Forex Analysis: Euro Edges Higher On Greek Hopes- Fed Hawks In Focus

DailyFX

Talking Points

  • Euro: EZ Slips Back Into Recession, Greek Aid Deal On Horizon
  • British Pound: Retail Sales Disappoints, Moody’s To Review U.K. Rating
  • U.S. Dollar: Rallies To Three-Month High, Fed Hawks On Tap

Euro: EZ Slips Back Into Recession, Greek Aid Deal On Horizon

The Euro climbed to 1.2771 as German Finance Minister Wolfgang Schaeuble pledged to reach a decision on Greece ‘over the next few days,’ and there’s growing speculation that the periphery country will get a bundled aid package that could add up to more that EUR 44B as the region struggles to get its house in order.

At the same time, there are reports that the EU is looking to lower borrowing costs for Greece as the region fails to secure the next bailout payment, but we may see the group struggle to meet on common ground German lawmakers remain reluctant to accept a writedown on Greek debt.

Nevertheless, the advance 3Q GDP report showed the euro-area slipping back into recession as the growth rate contracted another 0.1% during the three-months through September, while the European Central Bank’s (ECB) monthly report showed a downward revision in the economic forecast as the region is now expected to grow an annualized 0.3% in 2013. As the fundamental outlook for the region deteriorates further, the ECB is likely to come under increased pressure to shore up the ailing economy, and we may see a growing number of central bank officials call for a rate cut in an effort to stem the downside risks surrounding the region.

As the EURUSD bounced back ahead of the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, we may see the pair continue to consolidate over the next 24-hours of trading, but the near-term correction may gather pace in the coming days as the relative strength index breaks out of the downward trend carried over from the previous month. Nevertheless, we will maintain a bearish outlook for the pair as the fundamental outlook for the region turns increasingly bleak, and the single currency remains poised to face additional headwinds over the near-term as the EU struggles to address the debt crisis.

British Pound: Retail Sales Disappoints, Moody’s To Review U.K. Rating

The British Pound slipped to a fresh monthly low of 1.5822 as U.K. retail sales contracted 0.8% in October amid forecasts for a 0.1%, while Moody’s Investor Services said it would assess the Aaa rating for Britain in 2013 as the region faces a protracted recovery.

Indeed, the ratings agency argued that ‘political appetite for significant additional expenditure cuts in the parliament is likely to be very limited’ as the region struggles to return to growth, and the persistent slack in the real economy may continue to fuel speculation for additional monetary support as the Bank of England (BoE) keeps the door open to expand its balance sheet further.

However, given sticky price growth, the heightening threat for inflation should keep the central bank on the sidelines over the near to medium-term, and we may see a growing number of BoE officials soften their dovish tone for monetary policy as the region emerges from the double-dip recession.

Nevertheless, the GBPUSD may continue to give back the rebound from earlier this year as it preserves the downward trend from 2011, but the pair looks poised for a near-term correction as the relative strength index bounces back head of oversold territory.

U.S. Dollar: Rallies To Three-Month High, Fed Hawks On Tap

The greenback surged higher on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) jumping to a fresh monthly high of 10,060, and the reserve currency may track higher throughout the North American trade as the flight to safety gathers pace.

Meanwhile, the U.S consumer price report showed the headline reading for inflation advancing 2.2% in October amid forecasts for a 2.1% print, and heightening price pressures in the world’s largest economy may sap speculation for additional monetary support from the Fed as the recovery gradually gathers pace. As we have a slew of Fed hawks scheduled to speak today, we may see a growing number of central bank officials talk down speculation for more quantitative easing, and the weakening argument for additional monetary support may spark a bullish reaction in the dollar as market participants weigh the prospects for future policy.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:00

10:00

Mortgage Delinquencies (3Q)

7.58%

USD

15:00

10:00

MBA Mortgage Foreclosures (3Q)

4.27%

USD

15:00

10:00

Philadelphia Fed. (NOV)

2.0

5.7

CAD

15:30

10:30

Bank of Canada Publishes Quarterly Review

USD

16:00

11:00

DOE U.S. Crude Oil Inventories (NOV 9)

1766K

USD

16:00

11:00

DOE U.S. Distillate Inventory (NOV 9)

131K

USD

16:00

11:00

DOE U.S. Gasoline Inventories (NOV 9)

2875K

EUR

17:00

12:00

ECB's Jorg Asmussen Speaks on Euro Economy

USD

19:45

14:45

Fed's Richard Fisher Speaks on U.S. Economy

USD

21:00

16:00

Federal Reserve Releases Stress Test Scenarios

USD

21:30

16:30

Fed's Charles Plosser Speaks on U.S. Economy

USD

23:30

18:30

Fed's William Dudley Speaks on U.S. 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.

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