The euro retraced the two-day decline and surged to a fresh yearly high of 1.4820against the greenback, and the single-currency may continue to push higher throughout the trading session as investors increase their appetite for risk.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: USD/JPY Halts Three-Day Advance
• Pound: Holds August Range
• Euro: Hits Fresh Yearly High
• US Dollar: Richmond Fed, House Prices on Tap[/B]
The euro retraced the two-day decline and surged to a fresh yearly high of 1.4820against the greenback, and the single-currency may continue to push higher throughout the trading session as investors increase their appetite for risk. However, as the pair remains overbought (RSI @ 72), the EUR/USD looks to be in the process of carving out a top following the rally from 1.4200 earlier this month, and the pair is poised to fall back this week and is likely to test the recent lows for short-term support.
At the same time, European Central Bank council member Axel Weber defended the recent appreciation in the exchange rate, stating that “the behavior of the foreign-exchange market is not out of line” following the economic developments in the Euro-Zone, and reiterated that the current policy remains “appropriate” as the central bank maintain its one and only mandate to ensure price stability. At the same time, Mr. Weber held a hawkish outlook for long-term inflation and saw a risk for upward price pressures to reemerge “particularly if the loose monetary policy were to stay in place for too long,” and the comments suggests that the ECB could be one of the first central banks to implement an exit strategy as the Governing Council maintains a 2% target for inflation. As the economic outlook improves, market participants speculate the central bank to tighten policy over the next 12-months, and expectations for a rate hike next year may continue to drive the euro higher throughout the second-half of the year.
The British pound halted the three-day slide against the U.S. dollar and retraced the previous day’s decline to hold the broad range from August, and the GBP/USD may continue to trend sideways over the coming months as investors weigh the outlook for future policy. The pound-dollar rallied to a high of 1.6351 during the European session as investors increased their appetite for higher yielding assets, and the rise in global equities should lead the pair higher going into the U.S. trade as market sentiment improves. Meanwhile, Reuters cited an unidentified diplomat and said that Bank of England Governor Mervyn King could possibly take a seat on the European Systemic Risk Board as a deputy to ECB President Jean-Claude Trichet, which aims to monitor the risks for the European Union’s banking system, and the report went onto say that board may receive strong backing from the U.K. if members approve Mr. King’s appointment.
The greenback across the board and slipped to a fresh yearly low against the euro, Swiss franc, and New Zealand dollar during the overnight trade, and the reserve currency may continue to lose ground going into the North American trade as the futures market foreshadows a higher open for U.S. equities. Nevertheless, the Richmond Fed Manufacturing index is expected to rise to 16 in September after holding at 14 during the past two-months, while the Federal Housing Finance Agency’s house price index is forecasted to increase 0.5% for the second month in July as potential home buyers take advantage of low rates and foreclosed homes. As the economic docket is expected to reinforce an enhanced outlook for the world’s largest economy, the U.S. dollar may regain its footing going into the U.S. trade as growth prospects improve.
[B]Will The EUR/USD Remain Above 1.4000? Join us in the [/B][B]Forurm[/B]
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Forex Weekly Trading Forecast - 09.21.09
[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]