- Euro: EU's Rehn Pledges To Strengthen Firewall Amid Slowing Recovery
- British Pound: Maintains Range Ahead Of 4Q GDP, BoE's Miles Supports More QE
- U.S. Dollar: Index Maintains Upward Trend, 61.8% Fib In Sight
Euro: EU's Rehn Pledges To Strengthen Firewall Amid Slowing Recovery
The Euro cleared the 100-Day SMA (1.3310) and rallied to an overnight high of 1.3341 as European Union Economic and Monetary Commissioner Olli Rehn talked up expectations of increasing the bailout fund, but the recent strength in the single currency could be short-lived as the fundamental outlook for the region turns increasingly bleak. Indeed, the EU lowered its growth forecast for the region as the group sees the economy contracting 0.3% this year versus an initial forecast for a 0.5% rise in GDP, and went onto say that the fundamental outlook for Europe remains clouded with high uncertainty amid the ongoing turmoil within the financial system.
Should the EUR/USD fail to close above the 100-Day SMA (1.3310), the pop above the moving average may turn out to be a false break, and we may see the exchange rate consolidate over the remainder of the week as the economic docket is expected to instill a weakening outlook for the region. At the same time, market volatility may thin going into the following week as the European Central Bank prepares to push through its second unlimited three-year loan facility, but the outcome may spook investors should demands well-exceed the first wave of loans which amounted to EUR 489B. In turn, we may see the single currency face additional headwinds over the coming days, and the euro-dollar may ultimately give back the advance from earlier this year as European policy makers struggle to restore investor confidence.
British Pound: Maintains Range Ahead Of 4Q GDP, BoE's Miles Supports More QE
The British Pound advanced to an overnight high of 1.5730 amid the rise in risk appetite, but the lack of momentum to push back above the 38.2% Fibonacci retracement from the 2009 low to high around 1.5730-50 may spur a short-term correction over the next 24-hours of trading. As the preliminary 4Q GDP report for the U.K. is expected to show a 0.2% contraction in the growth rate, the development could drag on the exchange rate, and we may see the Bank of England maintain a dovish tone for monetary policy as the region continues to face a risk of a double-dip recession. Indeed, BoE board member David Miles supported more quantitative easing for the U.K. amid the slowing recovery, and held a cautious outlook for the region amid on the ongoing slack within the private sector. As the GBP/USD continues to trade between the 200-Day (1.5912) and the 50-Day SMA (1.5621), the pair may consolidate within the narrow range going into March, but we may see the sterling extend the rebound from earlier this year should the economic docket foreshadow a more robust recovery for 2012.
U.S. Dollar: Index Maintains Upward Trend, 61.8% Fib In Sight
The greenback struggled to hold its ground on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to an overnight low of 9,829, but we may see the reserve currency regain its footing during the North American trade as market sentiment tapers off. As the U.S equity market opens lower, it looks as though we will see a shift away from risk-taking behavior, and the reserve currency should continue to recoup the losses from earlier this year as the index maintains the upward trending channel carried over from the previous month. In turn, we may see the USDOLLAR make a run at the 61.8% Fibonacci retracement around 9,949, and bullish sentiment underlining the reserve currency may gather pace throughout 2012 as the Federal Reserve softens its dovish tone for monetary policy.
--- Written by David Song, Currency Analyst