Forex: USD Weighed Ahead Of FOMC, Bernanke - EU Summit To Disappoint

DailyFX

Talking Points

  • U.S. Dollar: Struggles Ahead Of FOMC, All Eyes On Chairman Bernanke
  • Euro: Greece To Buy Back EUR 31.9B In Debt, EU Summit On Tap
  • British Pound: Jobless Claims Top Forecast, BoE Warns Of ‘Sticky’ Inflation

U.S. Dollar: Struggles Ahead Of FOMC, All Eyes On Chairman Bernanke

The greenback extended the decline from earlier this week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) weakening to 9,939, and the reserve currency may weaken further during the North American trade should the Federal Reserve take additional steps to encourage a stronger recovery.

Indeed, there’s speculation that the Federal Open Market Committee (FOMC) will expand its open-ended asset purchase program beyond the $40B monthly limit as ‘Operation Twist’ is expected to expire, but we may see the central bank carry a wait-and-see approach into the following year as Chairman Ben Bernanke strikes an improved outlook for 2013.

Beyond the interest rate decision at 17:30 GMT, the press conference with Chairman Bernanke at 19:15 GMT could have a greater impact on the dollar as market participants weigh the outlook for monetary policy, and the central bank head may strike a more neutral tone this time around as the economic recovery gradually gathers pace.

Euro: Greece To Buy Back EUR 31.9B In Debt, EU Summit On Tap

The Euro advanced to an overnight high of 1.3051 as Greece plans to retire EUR 31.9B in government debt through its bond-buyback program, and the single currency may continue to retrace the pullback from the monthly high (1.3125) as European policy makers pledge to strengthen the monetary union.

As the EU Summit comes into focus, the meeting is expected to yield a decision on Greece’s next bailout payment following the meeting, but talks for bank supervision in the euro-area may fail to bear fruit should the group struggle to meet on common ground. Indeed, hopes surrounding the conference in Brussels may quickly fizzle as the governments operating under the monetary union continue to act in their own interest, and the deepening recession in Europe should continue to dampen the appeal of the single currency as the periphery countries become increasingly reliant on external support.

As the EURUSD remains capped by the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around the 1.3120 figure, we may see the pair maintain the sideways price action carried over from the previous month, but we will preserve a bearish outlook for the pair as the European Central Bank (ECB) carries its easing cycle into 2013.

British Pound: Jobless Claims Top Forecast, BoE Warns Of ‘Sticky’ Inflation

The British Pound climbed to a fresh monthly high of 1.6147 as jobless claims in the U.K. unexpectedly slipped 3.0K in November, while Bank of England (BoE) board member Spencer Dale struck a rather hawkish tone for monetary policy amid ‘sticky’ inflation.

Indeed, it seems as though the Monetary Policy Committee (MPC) is slowing moving away from its easing cycle as the U.K. emerges from the double-dip recession, and the central bank looks poised to retain its current policy throughout the first-half of the following year as price growth is expected to remain above the 2% target over the next two-years.

As the BoE drops its dovish tone for monetary policy, the shift in central bank rhetoric continues to reinforce a bullish outlook for the British Pound, and the GBPUSD looks poised to make another run at the 23.6% Fib from the 2009 low to high around the 1.6200 figure as the BoE scales back its willingness to expand the balance sheet further.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

15:30

10:30

DOE U.S. Crude Oil Inventories (DEC 7)

-2357K

USD

15:30

10:30

DOE U.S. Distillate Inventory (DEC 7)

3027K

USD

15:30

10:30

DOE U.S. Gasoline Inventories (DEC 7)

7860K

EUR

16:00

11:00

ECB's Vitor Constancio Presents Financial Stability Review

USD

17:30

12:30

Federal Open Market Committee Interest Rate Decision

0.25%

0.25%

USD

19:00

14:00

Monthly Budget Statement (NOV)

-$136.0B

-$137.3B

USD

19:00

14:00

FOMC Releases Economic and Fed Funds Rate Forecast

USD

19:15

14:15

Fed Chairman Ben Bernanke Holds Press Conference

NZD

21:00

16:00

ANZ Job Ads (MoM) (NOV)

-0.8%

NZD

21:30

16:30

Business NZ Performance of Manufacturing Index (NOV)

50.5

NZD

21:45

16:45

Food Prices (MoM) (NOV)

-0.6%

--- 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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