The Euro weakened against the greenback for the third day as the economic docket reinforced a weakened outlook for the region, and the single-currency may continue to hold the downward trending channel going into the following week as the exchange rate slips to a fresh yearly low of 1.3530.
[U][B]Talking Points[/B][/U]
[B]• Japanese Yen: Benefitting From Risk Aversion
• Pound: Holds Range From Earlier This Week
• Euro: 4Q GDP Expands Less-Than-Expected
• US Dollar: Retail Sales, U. of Michigan Confidence on Tap[/B]
The Euro weakened against the greenback for the third day as the economic docket reinforced a weakened outlook for the region, and the single-currency may continue to hold the downward trending channel going into the following week as the exchange rate slips to a fresh yearly low of 1.3530. Meanwhile, European Central Bank President Jean-Claude Trichet said that statements from EU leaders will be “important,’ and noted the central bank is “permanently alert” on the economic developments in Greece as policy makers aim to support the nations operating under the single-currency.
Economic activity in the Euro-Zone increased 0.1% in the fourth-quarter, which failed to meet forecasts for a 0.3% expansion in the growth rate, while industrial outputs unexpectedly contracted 1.7% in December after rising a revised 1.4% in the previous month. Moreover, the preliminary 4Q GDP reading for Germany held flat amid projections for a 0.2% gain in the growth rate, and the ongoing slump in the domestic economy may continue to weigh on the recovery as households face tightening credit conditions paired with the deterioration in the labor market. As a result, the ECB is likely to keep the benchmark interest rate at the record-low of 1.00% at its next meeting in March, and may hold a dovish outlook for future policy as the Governing Council expects to see an uneven recovery this year.
The British Pound maintained the narrow range from earlier this week and slipped to a low of 1.5583 following a rise in risk aversion, and the GBP/USD may continue to test the lower bounds of the channel formation as the U.S. dollar rallies across the board. However, it seems as though the pound-dollar is carving out a near-term bottom as the RSI climbs out of oversold territory, and we could see the pair test the upper bounds of the downward trending channel over the following week as the economic docket is expected to reinforce an improved outlook for the U.K. However, as the Bank of England is scheduled to release its policy meeting minutes on Wednesday, dovish statements could weigh on the exchange rate as the central bank maintains a cautious outlook for the economy, and a drop in interest rate expectations could lead the pound-dollar to break below the 1.5500 level as the MPC maintains the option to increase the scope of its asset purchase program.
The greenback rallied against all of its major currency counterparts, with the USD/JPY paring the previous day’s decline to reach a high of 90.36, and the U.S. dollar is likely to face increased volatility going into the North American trade as the economic calendar is expected to reinforce an improved outlook for the world’s largest economy. Retail spending is expected to increase 0.3% in January following the unexpected contraction during the previous month, while the U. of Michigan Confidence survey is anticipated to increase to 75.0 in February, which would be the highest reading since January 2008. At the same time, business inventories are projected to rise 0.2% in December after advancing 0.4% in the previous month, while the DOE energy inventory report is expected to show a 1600K rise in stockpiles of crude oil.
[B]Will the EUR/USD Maintain the Downward Trending Channel From January? Join us in the Forum[/B]
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[I]
To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]
