Talking Points

  • Euro: Eyes 1.3000 Amid Renewed Threats For Contagion
  • British Pound: Threatens Upward Trend, BoE Maintains Current Policy
  • U.S. Dollar: Continues To Benefit From Risk Aversion, NFPs In Focus

Euro: Eyes 1.3000 Amid Renewed Threats For Contagion

The Euro extended the decline from earlier this week to reach a fresh monthly low of 1.3038 and the single currency may continue to track lower over the next 24 hours of trading as the fundamental outlook for the region deteriorates. Indeed, the yield tied to Spain's 10-Year debt rose to the highest level since the European Central Bank conducted its first Long Term Refinancing Operation in December, and the threat of contagion is likely to put increased pressure on the Governing Council as the governments operating under the single currency become increasingly reliant on monetary support.

At the same time, France sold EUR 8.439B in bonds yielding 2.98%, which compares to the 2.91% offered back in March, and renewed fears surrounding the debt crisis is likely to push the EURUSD lower over the near-term as European policy makers struggle to restore investor confidence. As the euro-dollar carves out a lower top coming into March, it seems as though it will only be a matter of time before we see 1.3000 give way, and a break below the key figure should expose the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50 as we maintain a bearish outlook for the pair. However, we may see the EURUSD track sideways throughout April should 1.3000 provide interim support, and the pair may continue to consolidate over the near-term as market participants weigh the prospects for future policy.

British Pound: Threatens Upward Trend, BoE Maintains Current Policy

The British Pound slipped below the 50-Day SMA (1.5816) amid the slowdown in business outputs, but we may see the GBPUSD track higher over the remainder of the week as it maintains the upward trending channel from earlier this year. As expected, the Bank of England refrained from releasing a policy statement after maintaining its current policy in April, but we may see the central bank endorse a wait-and-see approach throughout the first-half of the year as it completes the GBP 325B in quantitative easing. In turn, the policy meeting in May could set the tone for the rest of the year, and we may see the BoE continue to soften its dovish tone as MPC officials expect to see a more robust recovery in 2012. As a result, we will stick to our bullish call for the GBPUSD, and the pair may continue to retrace the decline from the previous year as the central bank looks to bring its easing cycle to an end.

U.S. Dollar: Continues To Benefit From Risk Aversion, NFPs In Focus

The greenback continued to gain ground on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a fresh weekly high of 10,047, and the reserve currency looks poised to appreciate further during the North American trade as the shift away from risk-taking behavior gathers pace. As the jobless claims figures continue to reinforce an improved outlook for the U.S. labor market, there's certainly a good chance for the highly anticipated Non-Farm Payrolls report to top market expectations, and an above-forecast print could spark a sharp rally in the dollar as the development dampens speculation for more quantitative easing. In turn, we should see the index continue to recoup the losses from March, and the USDOLLAR looks poised to make another run at the 78.6% Fib around 10,118 as the fundamental outlook for the world's largest economy improves.

--- Written by David Song, Currency Analyst

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

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