Forex: Euro Looks Lower Amid Bets For Further Greek Aid- Eyes 1.2650

DailyFX

Talking Points

  • Euro: Germany To Vote On Greek Deal, Schaeuble Sees Further Assistance
  • British Pound: BoE Keeps Door Open For More QE Amid Ongoing Slack
  • U.S. Dollar: Benefits From Risk Aversion, Fed’s Beige Book In Focus

Euro: Germany To Vote On Greek Deal, Schaeuble Sees Further Assistance

The EURUSD weakened to an overnight low of 1.2880 as German Finance Minister Wolfgang Schaeuble kept the door open to provide further support for Greece, but the reactionary approach in dealing with the debt crisis may continue to dampen the appeal of the single currency as the governments operating under the monetary union become increasingly reliant on external assistance.

As the Bundestag, Germany’s lower house, prepares to vote on the new aid package for Greece, Mr. Schaeuble showed a greater willingness to shore up the periphery country as long as the coalition government continues to meet all of its obligations, but we may see the EU put increased pressure on the European Central Bank (ECB) to ease monetary policy further as the debt crisis drags on the real economy.

The Bank of Spain warned that the extraordinary efforts taken by the ECB ‘has started to show some symptoms of wearing out’ as the periphery countries struggle to get their house in order, and we should see the Governing Council carry its easing cycle into the following year in order to tackle the deepening recession. As the ECB stands ready to implement the Outright Monetary Transactions (OMT), the weakening outlook for growth and inflation may prompt the central bank to target the benchmark interest rate in 2013, and we may get some hints for a rate cut at the December 6 meeting as the economic downturn threatens the outlook for price stability.

As the EURUSD carves out a lower top ahead of December, the reversal from 1.3007 should gather pace in the days ahead, and the pair looks poised to fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as it searches for support.

British Pound: BoE Keeps Door Open For More QE Amid Ongoing Slack

The British Pound extended the decline from earlier this week, with the GBPUSD slipping to a low of 1.5961, but the recent weakness in the sterling may be short lived as the Bank of England (BoE) looks to carry its wait-and-see approach into the following year.

Although the BoE expects inflation to hold above the 2% target over the next two-years, board member Charles Bean argued that the Monetary Policy Committee (MPC) should keep the door open to expand its balance sheet further amid the persistent slack in the real economy. However, above-target inflation may become a pressing concern for the central bank as price growth has held above 2% since 2008, and we may see a growing number of MPC change their tune in 2013 as the U.K. emerges from the double-dip recession.

As the GBPUSD appears to be carves out a higher low in November, the rebound from 1.5822 may gather pace going into December, and we are still looking for a run at the 23.6% Fib from the 2009 low to high around 1.6190-1.6200 as the relative strength index breaks out of the bearish trend.

U.S. Dollar: Benefits From Risk Aversion, Fed’s Beige Book In Focus

The greenback extended the advance from the previous day, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) climbing to a high of 9,998, and the reserve currency may track higher throughout the North American trade as market participants scale back their appetite for risk.

As new home sales are expected to increase another 0.3% in October, the budding recovery in the housing market may spark a bullish reaction in the USDOLLAR, but we may see market volatility taper off ahead of the Fed’s Beige Book as market participants weigh the outlook for monetary policy. Indeed, the district banks should continue to highlight a more broad-based recovery in the world’s largest economy, and the report may sap bets for more easing as the recovery gradually gathers pace.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:00

10:00

USD New Home Sales

390K

389K

USD

15:00

10:00

USD New Home Sales (MoM)

0.30%

5.70%

USD

15:30

10:30

USD DOE U.S. Crude Oil Inventories

350K

-1466K

USD

15:30

10:30

USD DOE Cushing OK Crude Inventory

1469K

USD

15:30

10:30

USD DOE U.S. Gasoline Inventories

900K

-1547K

USD

15:30

10:30

USD DOE U.S. Distillate Inventory

500K

-2675K

USD

19:00

14:00

USD Fed Releases Beige Book Economic 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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