Talking Points

  • Euro: EU Makes Greater Push For Fiscal Integration Ahead Of Summit
  • British Pound: BoE Governor King Looks At More QE On Euro-Area Risk

Euro: EU Makes Greater Push For Fiscal Integration Ahead Of Summit

The Euro slipped to a low of 1.2454 even as European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and Euro Group President Jean-Claude Juncker laid out a tentative framework to foster a tighter-knit fiscal and banking union, and the single currency may face additional headwinds over the next 24-hours of trading should the summit in Brussels disappoint. Indeed, the EU may struggle to meet on common ground as the governments operating under the fixed-exchange rate system continue to act in their own interest, and heightening finance costs across the periphery countries may continue to drag on investor confidence as the group maintains a reactionary approach in addressing the debt crisis.

As we don't expect to see much coming out of the meeting, we will maintain our bearish outlook for the EURUSD, and the pair may continue to give back the rebound from 1.2287 as the fundamental outlook for the region turns increasingly bleak. According to Credit Suisse overnight index swaps, market participants are now pricing a 44% chance for a 25bp rate cut at the July 5th meeting, but the European Central Bank may have little choice but to implement a range of tools to shore up the ailing economy as the region continues to face a risk for a prolonged recession. In turn, it seems as though the EURUSD has carved out a short-term top in June, and we anticipate to see fresh yearly lows in the exchange rate as the downward trend carried over from 2011 continues to take shape.

British Pound: BoE Governor King Looks At More QE On Euro-Area Risk

The British Pound pared the overnight advance to 1.5650 as Bank of England Governor Mervyn King continue to talk up speculation for more monetary easing, and currency traders may become increasingly bearish against the GBPUSD as the Monetary Policy Committee shows a greater willingness to expand the asset purchase program beyond the GBP 325B target. As uncertainties surrounding the euro-area dampen the outlook for the U.K., Governor King may sound increasingly dovish throughout the second-half of the year, and the GBPUSD may give back the rebound from 1.5268 as it appears to be carving out a short-term top ahead of July. In turn, we may see the pound-dollar fall back towards the 50.0% Fibonacci retracement from the 2009 low to high around 1.5270, but the pair may track sideways in the month ahead should the majority of the MPC stick to its current policy.

More to Follow...

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong