Talking Points

  • Euro: Moody's Cuts EU Outlook, Germany Puts Increased Pressure On Greece
  • British Pound: To Consolidate Ahead Of BoE, Outlook Remains Bullish
  • U.S. Dollar: Benefits From Risk Aversion, ISM Manufacturing on Tap

Euro: Moody's Cuts EU Outlook, Germany Puts Increased Pressure On Greece

The Euro gave back the overnight advance to 1.2626 as Moody's Investor Services cut the EU's Aaa credit-rating to 'negative' from 'stable,' while German Finance Minister Wolfgang Schaeuble argued that Greece must fulfill 'its obligations completely' as the region looks for an extension to meet its budget target. Meanwhile, European Central Bank President Mario Draghi warned of the ongoing rift within the EU as the bond purchase program comes under increased scrutiny, but there's growing speculation that the Governing Council will funnel more details at the policy meeting scheduled for later this week as the debt crisis continues to drag on the real economy.

At the same time, 30 of the 58 economists polled by Bloomberg News see the ECB lowering the benchmark interest rate by 25bp in September as Bundesbank President Jens Weidmann and National Bank of Belgium Governor Luc Coene argue against expanding the balance sheet, and the rate decision may fail to prop up investor sentiment should Mr. Draghi struggle to obtain a majority to push through the non-standard measure. Although the EURUSD managed to close above the 100-Day SMA (1.2570) during the holiday trade, the pair may struggle to clear the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as hopes of seeing a major ECB announcement fizzles. In turn, we may see the EURUSD carve out a lower top ahead of the rate decision, and we will keep a close eye on the relative strength index as it continues to flirt with overbought territory.

British Pound: To Consolidate Ahead Of BoE, Outlook Remains Bullish

The British Pound fell back from 1.5907 as currency traders scaled back their appetite for risk, but the sterling may continue to appreciate against its major counterparts as the Bank of England is widely expected to endorse a wait-and-see approach for monetary policy. Indeed, the BoE may keep the benchmark interest rate at 0.50% while maintaining its asset purchase program at GBP 375B as the Funding for Lending scheme gets under way, and Governor Mervyn King may strike a more neutral tone for future policy as growth and inflation picks up. As the GBPUSD maintains the upward trending channel from July, the bullish momentum should continue to gather pace, but we may see a small pullback before another run to the upside as the RSI continues to fall back from a high of 67.

U.S. Dollar: Benefits From Risk Aversion, ISM Manufacturing on Tap

The greenback is tracking higher ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 10,008, and the reserve currency may appreciate further over the next 24-hours of trading as the economic docket is expected to instill an improved outlook for the U.S. Indeed, a rebound ISM Manufacturing paired with a fourth consecutive rise in construction spending may sap speculation for another round of quantitative easing, and we may see the index track higher ahead of the highly anticipated Non-Farm Payrolls report as the economic recovery gradually gathers pace.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

ISM Manufacturing (AUG)

50.0

49.8


USD

14:00

10:00

ISM Prices Paid (AUG)

46.5

39.5


USD

14:00

10:00

Construction Spending (MoM) (JUL)

0.4%

0.4%


USD

21:00

17:00

Total Vehicle Sales (AUG)

14.17M

14.05M


USD

21:00

17:00

Domestic Vehicle Sales (AUG)

11.00M

11.00M


NZD

22:45

18:45

Value of All Buildings s.a. (2Q)

3.0%

-0.4%


GBP

23:01

19:01

BRC Shop Price Index (YoY) (AUG)


1.0%


--- Written by David Song, Currency Analyst

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