Talking Points
- Euro: EU Policy Makers Look At Greek Extension, ECB To Unload Debt
- British Pound: BCC Calls For More Support Amid Stagnant Economy
- U.S. Dollar: Watching Risk Sentiment Ahead Of FOMC Minutes
Euro: EU Policy Makers Look At Greek Extension, ECB To Unload Debt
The relief rally in the EURUSD continued to take shape as the
exchange rate advanced to a high of 1.2928, but we may see the
euro-dollar threaten the upward trend carried over from the end of July
amid the heightening risk for a Greek default.
As Greece struggles to secure its next bailout payment, there’s talk
that European policy makers will extend the deadline for the region to
meet its budget target, while we’re seeing speculation that the European
Central Bank may push its Greek debt holdings to the European Stability
Mechanism amid the growing threat for another credit event. As the debt
crisis continues to dampen the fundamental outlook for the euro-area,
the governments operating under the fixed-exchange rate may put
increased pressure on the ECB to expand monetary policy further, and the
Governing Council may now look to target the benchmark interest rate as
the economy faces a deepening recession.
Although the ECB is widely expected to maintain its current policy in
October, it appears that a growing number of central bank officials are
showing a greater willingness to lower borrowing costs further, and the
rebound in the EURUSD may be short-lived as market participants raise
bets for a rate cut. As the euro-dollar maintains the range carried over
from the previous week, it looks as though the exchange rate will
continue to track sideways going into the ECB rate decision, but we may
see the pair struggle to hold above the 200-Day SMA at 1.2820 should
central bank President Mario Draghi sound increasingly dovish this time
around.
British Pound: BCC Calls For More Support Amid Stagnant Economy
The British Pound pared the overnight advance to 1.6168 as the
British Chambers of Commerce warned that the ‘economy has been stagnant
for too long and urgent measures are needed to enable businesses to
drive a sustainable recovery,’ and the GBPUSD may continue to
consolidate ahead of the Bank of England interest rate decision as
market participants weigh the outlook for monetary policy.
Although there’s lingering bets that the BoE will continue to embark
on its easing cycle over the near to medium-term, it seems as though the
Monetary Policy Committee is scaling back its forecast for
undershooting the 2% target for inflation as the region appears to be
emerging from the double dip recession. In turn, we may see Governor
Mervyn King soften his dovish tone for monetary policy, and the central
bank head may endorse a neutral stance throughout the remainder of the
year as the economy gets on a more sustainable path.
As the GBPUSD maintains the range from the previous day, we may see
the exchange rate continue to track along the 20-Day SMA at 1.6137, but
the pair may resume the bullish trend from back in July should the BoE
talk down speculation for additional monetary support.
U.S. Dollar: Watching Risk Sentiment Ahead Of FOMC Minutes
The greenback is losing ground going into the North American trade,
with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) falling
back from 9,885, and the rise in risk-taking behavior may continue to
press on the reserve currency as risk trends continue to dictate price
action in the FX market.
As the economic docket remains fairly light for Tuesday, we should
see trader sentiment heavily influence market volatility throughout the
day, but the dollar may continue to consolidate ahead of the Federal
Open Market Committee Minutes on tap for Thursday we’re seeing a lot of
mixed views surrounding the open-ended asset purchase program. As the
new measure is expected to have a limited impact in fostering job
growth, Fed Chairman Ben Bernanke may come under increased scrutiny, and
the committee may slowly bring its easing cycle to an end as the
world’s largest economy faces a limited risk of slipping back into
recession.
FX Upcoming
| Currency | GMT | EDT | Release | Expected | Prior | |
| USD | 13:45 | 9:45 | ISM New York (SEP) | 51.4 | ||
| USD | 21:00 | 17:00 | Total Vehicle Sales (SEP) | 14.40M | 14.46M | |
| USD | 21:00 | 17:00 | Domestic Vehicle Sales (SEP) | 11.40M | 11.54M | |
| GBP | 23:01 | 19:01 | BRC Shop Price Index (YoY) (SEP) | 1.1% |
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow him on Twitter at @DavidJSong
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