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The euro pares losses from the previous day but failed to cross back above 1.4300 during the overnight session, and we may see the EUR/USD hold steady going into the U.S. trade as investors early await the release of U.S. Non-Farm payrolls due out at 12:30 GMT.


Talking Points


• Japanese Yen: Continues to Retrace the Weekly Advance
• Pound: New Car Registrations Jump in July
• Euro: ECB Sheds Light on Exit Strategy
• US Dollar: Non-Farm Payrolls on Tap



The euro pares losses from the previous day but failed to cross back above 1.4300 during the overnight session, and we may see the EUR/USD hold steady going into the U.S. trade as investors early await the release of U.S. Non-Farm payrolls due out at 12:30 GMT. Meanwhile, the European Central Bank was on the wires overnight, with President Jean-Claude Trichet and board member Juergen Stark shedding some light on the exit strategy however, Bundesbank President Axel Weber stated that ‘huge uncertainty' remains for the economic outlook, and went onto say that ‘a creditable exit strategy' must be implemented at the right time to lay the foundations for a sustainable recovery.

ECB President Trichet continued to reiterate that the central bank stands ready to remove ‘excess liquidity' and would take the appropriate steps ‘immediately' as the board maintains its one and only mandate to ensure price stability. Moreover, the central bank head said that the unconventional measures will be withdrawn once bank lending become normalized, and stated that any non-standard measures whose continuation would pose a threat to the achievement of price stability must be undone promptly. At the same time, Mr. Trichet said that the exit strategy does not include considerations about interest policy, and clarified that the term ‘exit strategy' should be understood as the framework and set of principles guiding our approach to unwinding the various non-standard measures. In addition, council member Juergen Stark said that the extraordinary efforts will be withdrawn as soon as upside risks to price stability emerge, and the hawkish tone hold by the central bank may continue to stoke long-term expectations for higher interest rates as policy makers anticipate economic activity to improve going into the following year.

The British pound advanced against the euro and the greenback for the third day, and the GBP/USD may continue to retrace the sell-off from the previous month as investors raise their appetite for higher risk/reward investments. Meanwhile, the economic docket showed new car registrations rose at an annual pace of 6.0% in August, and the data encourages an improved outlook for Europe's second largest economy as private sector spending accounts remains one of the leading drivers of growth. As market liquidity thins heading into the weekend, the GBP/USD is likely to face increased volatility as economists forecast the U.S. labor market to weaken further in August.

The U.S. dollar lost ground overnight and weakened against most of its currency counterparts as investors moved into higher yielding assets, and the greenback may continue to weaken over the next few hours of trading as non-farm payrolls are expected to fall 230K in August. However, the less-than-expected drop during the previous month paired with the unexpected fall in the annual rate of unemployment has left the door open of an enhanced NFP report, and we may see the dollar retrace the overnight decline if the release tops market forecasts. At the same time, we may also see the jobless rate tip lower as discouraged workers continue to leave the labor force however, as traders take off ahead of the U.S. holiday, we may see a muted reaction immediately following the release.

Will The EUR/USD Remain Above 1.4000? Join us in the Forurm

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com