Euro Euphoria Fizzles On Growth Concerns, Sterling Range In Focus

on July 30 2012 10:44 AM

Talking Points

  • Euro: Troika Extends Stay In Greece, Consumer Confidence Falters
  • British Pound: U.K. Mortgage Approves Hit 18-Month Low, Range Still In Play

Euro: Troika Extends Stay In Greece, Consumer Confidence Falters

The Euro slipped to an overnight low of 1.2224 as consumer confidence in Europe slipped to a three-year low in July, while there's talk that the troika - the EU, ECB, and IMF - will extend its visit to Greece amid the heightening threat of a default. At the same time, there's mounting hopes surrounding the European Central Bank interest rate decision scheduled for later this week as President Mario Draghi pledges to take additional steps to address the debt crisis, and it seems as though the central bank head will embark on additional asset purchases in an effort to stem the risk for contagion.

Although the ECB is widely expected to keep the benchmark interest rate at 0.75% in August, we may see the Governing Council lean towards a zero interest rate policy as the region heads for a prolonged recession, and the central bank may have little choice but to implement a range of tools over the coming months as growth and inflation falter. Indeed, we're still standing by our bearish forecast for the EURUSD as the relative strength index maintains the downward trend from earlier this year, and the pair should continue to give back the rebound from 1.2042 as the fundamental developments coming out of the region continues to drag on investor confidence.

British Pound: U.K. Mortgage Approves Hit 18-Month Low, Range Still In Play

The British Pound fell to 1.5672 as mortgage approvals in the U.K. weakened to an 18-month low, and the sterling should continue to retrace the rebound from the previous week as it maintains the range-bound price action carried over from June. As market participants look towards the Bank of England rate decision on tap for Thursday, we should see the GBPUSD track sideways ahead of the policy meeting, but we may see the central bank refrain from releasing a fresh statement as the Monetary Policy Committee is widely expected to keep the benchmark interest rate at 0.50% while maintaining its asset purchase target at GBP 375B. In turn, we may see the GBPUSD work its way back towards the 1.5400 figure, and we should see risk sentiment play an increased role in driving price action for the pair as the economic docket for the U.K. remains fairly light for the beginning of the week.

--- Written by David Song, Currency Analyst

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

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