Talking Points
Euro: Cyprus Struggles to Secure Bailout, ECB to Remain ‘Accommodative’
British Pound: To Hold Steady Ahead of U.K. CPI, BoE Minutes
U.S. Dollar: Producer Prices Remain Soft, Jobless Claims Weakens Further
Euro: Cyprus Struggles to Secure Bailout, ECB to Remain ‘Accommodative’
The Euro slipped to a fresh yearly low of 1.2910 as the EU plans to implement ‘growth- friendly fiscal consolidation’ policies to shore up the ailing economy, but the renewed threats for contagion may continue to dampen the appeal of the single currency as the governments operating under the monetary union scale back their push for austerity.
In the meantime, it looks as Cyprus will persistently struggle to secure a bailout as the EU pledges to reach ‘an agreement in the course of March,’ and the headlines coming out of the EU Summit may continue to drag on the exchange rate as European policy makers maintain a reactionary approach in addressing the debt crisis.
As the region remains mired in a recession, the European Central Bank pledged to maintain an ‘accommodative’ policy to help the economy return to growth later this year, and the Governing Council may have little choice but to lower borrowing costs further as the economic downturn threatens price stability.
Although we’re seeing the ECB stick to the sidelines, we may see a growing number of central bank officials lean towards another rate cut in order to encourage a stronger recovery, and the Governing Council may have little choice but to carry out its easing cycle throughout 2013 as the fundamental outlook for the region remains tilted to the downside.
As headlines coming out of the EU Summit disappoint, we should see the EURUSD continue to work its way back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, but we will keep a close eye on the relative strength index as it approaches oversold territory.
British Pound: To Hold Steady Ahead of U.K. CPI, BoE Minutes
The British Pound held with the previous day’s range as the GBPUSD fell back from an overnight high of 1.4957, and the sterling may continue to consolidate ahead of the Bank of England Minutes on tap for next week as market participants weigh the outlook for monetary policy.
However, as the U.K. Consumer Price report is expected to show heightening price pressures in the U.K., a larger-than-expected uptick in the headline reading may prop up the sterling ahead of the policy statement, and the majority of the Monetary Policy Committee may continue to endorse a neutral policy stance for 2013 as they anticipate a slow but sustainable recovery in Britain.
As the GBPUSD continues to come off of oversold territory, we are still looking for a close above the 30 figure to see a more meaningful correction in the exchange rate, and we should see the GBPUSD work its way back towards the 50.0% Fib from the 2009 low to high around 1.5260 as market participants scale back bets for more quantitative easing.
U.S. Dollar: Producer Prices Remain Soft, Jobless Claims Weakens Further
The greenback is regaining its footing going into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) bouncing back from a low of 10,517, and the reserve currency may track higher over the remainder of the week as the fundamental developments coming out of the world’s largest economy continues to highlight an improved outlook for growth.
Although Producer Prices grew an annualized 1.7% versus forecasts for a 1.8% print, the initial and continuing jobless claims print continued to reflect an improved outlook for the U.S. labor market, and we may see the bullish sentiment surrounding the dollar gather pace as the Fed faces limited scope to expand the balance sheet further.
FX Upcoming
Currency
GMT
EDT
Release
Expected
Prior
USD
20:30
16:30
Fed Releases Comprehensive Capital Analysis and Review
NZD
21:30
17:30
Business NZ Performance of Manufacturing Index (FEB)
55.2
NZD
0:00
20:00
ANZ Consumer Confidence Index (MAR)
121
NZD
0:00
20:00
ANZ Consumer Confidence (MoM) (MAR)
2.30%
— 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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