Talking Points

  • Euro: EU Meeting In Brussels Comes Into Focus
  • British Pound: Maintains Range, Poised To Trend Sideways Ahead Of BoE
  • U.S. Dollar: Risk Sentiment To Drive Prices On Light Economic Calendar

Euro: EU Meeting In Brussels Comes Into Focus, IMF To Lower Growth Forecast

Hopes surrounding the EU meeting in Brussels helped the Euro to pare the overnight decline to 1.3680, and the single-currency may continue to gain ground as European policy makers are expected to further discuss the details of expanding the European Financial Stability Facility. However, the relief rally in the single-currency may come to a halt as the political rift in Greece and Italy come under increased scrutiny, and the EUR/USD may extend the sharp reversal from 1.4246 as the fundamental outlook for the euro-area turns increasingly bleak.

Indeed, International Monetary Fund Managing Director Christine Lagarde warned that the group may lower its forecast for global growth as the world economy enters a 'dangerous and uncertain phase,' and went onto say that the G20 should embark on polices to stimulate growth while speaking in Russia. As the ongoing turmoil in the financial system bears down on the real economy, it seems as though the European Central Bank will continue to scale back the rate hikes from earlier this year, and the Governing Council may have little choice but to expand its nonstandard measures further as policy makers see the economy slipping back into a recession. In turn, we should see the EUR/USD continue to trade below the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3880-1.3900, and the pair may threaten the rebound from 1.3145 as European policy makers struggle to contain the risks surrounding the region.

British Pound: Maintains Range, Poised To Trend Sideways Ahead Of BoE

The British Pound bounced back from an overnight low of 1.5978 to maintain the range from the previous week, and the sterling may continue to trade sideways in the days ahead as market participants weigh the outlook for monetary policy. Indeed, the Bank of England interest rate decision highlights the biggest event risk for the British Pound, but market participants may overlook the policy meeting as the central bank is widely expected to keep the benchmark interest rate at 0.50% while maintaining its asset purchase target at GBP 275B. In turn, we should see the BoE refrain from releasing a policy statement, but the meeting minutes due out on November 23 may highlight expectations for additional monetary support as the central bank sees an increased risk of undershooting the 2% target for inflation. However, the BoE's quarter inflation report on November 16 may overshadow the minutes as we expect the central bank to curb its fundamental assessment for the U.K., and we may see the MPC carry its easing cycle into the following year in an effort to stem the risk of a double-dip recession. In turn, the GBP/USD may threaten the range from the previous week, and we may see the exchange rate fall back towards the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700 to test for near-term support.

U.S. Dollar: Risk Sentiment To Drive Prices On Light Economic Calendar

U.S. dollar price action was largely mixed during the overnight trade, but we may see the reserve currency regain its footing during the North American trade as equity futures foreshadow a lower open for the U.S. market. As the economic docket remains fairly light for Monday, risk trends is likely to heavily influence the major currencies, but the developments coming out of Europe could spark a shift in market sentiment as the EU increases its effort to restore investor confidence.

--- Written by David Song, Currency Analyst