- Euro: ECB Softens Dovish Tone, Italy Bond Auction Disappoints
- British Pound: Poised For Fresh Yearly High As Upward Trend Gathers Pace
- U.S. Dollar: Index Eyes 9,900 For Support, Fed Officials In Focus
Euro:ECB Softens Dovish Tone, Italy Bond Auction Disappoints
The Euro climbed to a fresh weekly high of 1.3175 as the European Central Bank pledged to 'address upside risks to medium-term price stability in a firm and timely manner,' but we are likely to see the Governing Council take additional steps to shore up the ailing economy as the sovereign debt crisis continues to heighten the risk for a prolonged recession. Indeed, Italy sold EUR 2.88B in 3-year bonds versus the EUR 3.00B target, while the government offered 3.89% on its debt, which compares to the 2.76% yield seen in March.
Meanwhile, ECB board member Joerg Asmussen argued that commercial banks in Ireland need to 'substantial' reduce their reliance on central bank funding, and it seems as though the Governing Council is looking to preserve a wait-and-see approach throughout the remainder of the year as it maintains its one and only mandate to ensure price stability. However, the ECB may have little choice but to expand policy further as the debt crisis continues to drag on investor confidence, and the threat for contagion may bring about another wave of non-standard measures as the governments operating under the single currency become increasingly reliant on monetary support. As there appears to be a descending triangle in the EURUSD, we will maintain our bearish outlook for the pair, and we may see the pair carve out another lower top ahead of May as the relative strength index maintains the downward trend from earlier this year. In turn, the short-term rebound in the exchange rate may provide a selling opportunity for FX traders, and we should see 1.3000 ultimately give way as the debt crisis continues to dampen the fundamental outlook for the region.
British Pound: Poised For Fresh Yearly High As Upward Trend Gathers Pace
The British Pound extended the advance from earlier this week amid the rise in risk-taking behavior, and we expect to see fresh yearly highs in the GBPUSD as the upward trending channel continues to take shape. However, as the economic docket is expected to show easing price pressures in the U.K., we may see the GBPUSD consolidate going into the end of the week, and we will look to buy the pair on a pullback as it carves out a higher low in April. As the Bank of England is scheduled to release its policy meeting minutes next week, the fresh batch of central bank rhetoric could set the stage for another move to the upside, and we may see the sterling outperform against its major counterparts should the Monetary Policy Committee continue to soften its dovish tone for monetary policy.
U.S. Dollar: Index Eyes 9,900 For Support, Fed Officials In Focus
The greenback tumbled lower on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)slipping to a fresh weekly low of 9,913, and the reserve currency may track lower throughout the North American trade as the U.S. equity market continues to pare the decline from earlier this week. As the rise in risk-taking behavior gathers pace, we may see the dollar index fall back towards 9,900 to test for interim support, and the slew of central bank rhetoric on tap for later today may help to prop up the greenback should Fed officials talk down speculation for additional monetary support. Indeed, we will be closely watching the remarks from FOMC voting members William Dudley and Sarah Bloom Raskin as central bank officials take note of the more robust recovery, and we may see the committee continue to soften its dovish tone for monetary policy as the fundamental outlook for the world's largest economy improves.
--- Written by David Song, Currency Analyst
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong