Talking Points

  • Euro: Threatens Descending Triangle, Spain Bond Auction In Focus
  • British Pound: U.K. Manufacturing Cools, RSI Falls Back From Overbought
  • U.S. Dollar: ISM Manufacturing On Tap, Watching Employment Component

Euro: Threatens Descending Triangle, Spain Bond Auction In Focus

The Euro climbed to a fresh weekly high of 1.3277 even as most of Europe and Asia were offline on Tuesday, and the rebound may gather pace during the holiday trade as the pair threatens the bearish formation from earlier this year. However, as Spain is scheduled to auction three and five-year debt on Thursday, we may see the euro-dollar consolidate going into the middle of the week, and the results is likely to reinforce a bearish outlook for the single currency as the periphery countries continue to face heightening finance costs.

Meanwhile, Euro Group President Jean-Claude Juncker announced that he will be leaving his post as European policy makers struggle to meet on common ground, and the ongoing rift within the EU casts a bearish outlook for the EURUSD as the governments operating under the single currency become increasingly reliant on monetary support. As the sovereign debt crisis continues to heighten the risk for a prolonged recession, we expect to see the European Central Bank carry out its easing cycle throughout 2012, and the Governing Council may look to target the benchmark interest rate as its non-standard measures have a limited impact in addressing the risks surrounding the region. Although the EURUSD threatens the bearish formation from earlier this year, we will maintain our bearish call for the pair as it appears to be carving a lower high just below 1.3300, and interim support around 1.3000 should ultimately give way as price action continues to approach the apex of the descending triangle.

British Pound: U.K. Manufacturing Cools, RSI Falls Back From Overbought

The British Pound slipped to a low of 1.6190 as manufacturing in the U.K. expanded at the slowest pace since December, and the GBPUSD may continue to consolidate over the week as the economic docket is expected to show a slowing recovery in the region. As the relative strength index falls back from overbought territory, the pound-dollar may have carved out a near-term top coming into May, but the bullish sentiment underlining the sterling should gather pace throughout 2012 as the Bank of England drops its dovish tone for monetary policy. As the GBPUSD maintains the upward trend from earlier this year, we are looking for fresh highs in the exchange rate, and the sterling may outperform over the near-term as the central bank looks to conclude its easing cycle.

U.S. Dollar: ISM Manufacturing On Tap, Watching Employment Component

The greenback continued to gain ground on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) rallying to a high of 9,863, but the reserve currency may come under pressure during the North American trade as the economic docket is expected to reinforce a weakened outlook for the U.S. As the ISM Manufacturing index is expected to fall back to 53.0 in April from 53.4 in the previous month, the slower rate of output could renew speculation for another round of quantitative easing, but we will keep a close eye on the employment component as the highly anticipated Non-Farm Payrolls report are due out on Friday. However, as risk trends continue to dictate price action across the currency market, a drop in market sentiment could prop up the USD, and the shift away from risk-taking behavior may gather pace in the coming days as the outlook for global growth deteriorates.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong