Talking Points

  • Euro: Spain To Tap EUR 30B By End Of July, ECB Talks Down Bond Purchases
  • British Pound: BoE Governor King Casts Weakened Outlook For U.K.
  • U.S. Dollar: Maintains Range-Bounce Prices Ahead Of FOMC Minutes

Euro: Spain To Tap EUR 30B By End Of July, ECB Talks Down Bond Purchases

The Euro held a narrow range during the overnight trade even as European policy makers agreed to expedite the EUR 100B bailout for Spain, and we may see the single currency face additional headwinds over the near-term as the fundamental outlook for the region continues to deteriorate. Indeed, the governments operating under the fixed-exchange rate system said they would make EUR 30B available to Spain by the end of the month, while Greek Finance Minister Yannis Stournaras called for 'an intermediate solution' to the debt crisis as the economic downturn in the region appears to be worse than expected.

In response, European Central Bank board member Christian Noyer argued that the region needs to 'restore investor confidence durably,' but went onto say that it's bond purchase program can only 'ease market turbulence temporarily' while speaking in Paris. In light of the fresh batch of central bank rhetoric, it seems as though the Governing Council will continue to utilized the benchmark interest rate to address the downside risks surrounding the region, but the central bank may have little choice but to further embark on its non-standard measures as the heightening risk for contagion continues to dampen the outlook for the region. As the downward trending channel in the EURUSD continues to take shape, the near-term bias remains bearish, but we will keep a close eye on the relative strength index as it approaches oversold territory. Nevertheless, as headlines coming out of the euro-area fail to prop up investor confidence, we are likely to see fresh yearly lows in the days ahead, and we may see the EURUSD fall back towards the 1.2200 figure to test for psychological support.

British Pound: BoE Governor King Casts Weakened Outlook For U.K.

The British Pound failed to maintain the overnight advance to 1.5548 as Bank of England Governor Mervyn King struck dovish tone for monetary policy, and the GBPUSD may continue to retrace the rebound from 1.5268 as the central bank continues to carry out its easing cycle. Indeed, it seems as though Mr. King is turning increasingly downbeat towards the economy as the region remains in a technical recession, and we may see the central bank head call for additional monetary support as the debt crisis continues to cloud the fundamental outlook for the U.K. However, as the GBPUSD continues to trade above the 1.5450 figure, we may see the pair track sideways ahead of the BoE Minutes due out next week, and the official statement should set the tone for the remainder of the month as market participants weigh the outlook for monetary policy.

U.S. Dollar: Maintains Range-Bounce Prices Ahead Of FOMC Minutes

The greenback is bouncing back ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) retracing the overnight decline to 10,136, and the reserve currency may appreciate further over the next 24-hours of trading as the rebound in risk-taking behavior appears to be tapering off. However, as the FOMC Minutes come into focus, we may see the dollar continue to consolidate within the narrow range carried over from the previous month, and a fresh batch of central bank rhetoric should set the tone for the remainder of the week as the Fed appears to be moving away from quantitative easing. Should the policy statement curb expectations for QE3, the development would certainly increase the appeal of the greenback, but we may see the committee leave the door open to expand monetary policy further in order to combat the slowing recovery.

--- Written by David Song, Currency Analyst

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