Talking Points
The Euro pared the rally from the previous week
and the single-currency may face increased
headwinds going into the North American trade
as European policy makers maintain a dovish
outlook for future policy. The EUR/USD fell back
from a high of 1.3629 and the exchange rate may
continue to retrace the advance from earlier this
month as the near-term rally appears to be
coming to a halt. The reversal in the relative
strength index reinforces a bearish outlook for the
next 24 hours of trading as the two-week rally
fails to push the oscillator above 70, and the
euro-dollar may test the 50.0% Fibonacci
retracement from the 2009 high to the 2010 low
around 1.3500 for support as price action
maintains the upward trend from the January low
(1.2873).
European Central Bank President Jean-Claude
Trichet continued to talk down the risk for
inflation during an interview with the Wall Street
Journal, and the dovish outlook held by the
central bank head could translate into further euro
weakness as investors weigh the prospects for
future policy. Mr. Trichet reiterated that monetary
policy remains “appropriate” despite the recent
rise in price growth, and went onto say that
second-round effects of higher commodity prices
should be contained as wage growth remains
subdued. As the ECB aims to encourage a
sustainable recovery, the central bank is likely to
maintain monetary support throughout the first-
half of the year, but the Governing Council could
be forced to support the real economy
throughout 2011 as the risk for contagion
intensifies. The lackadaisical approach to address
the debt crisis is likely to bear down on the
exchange rate as European policy makers
struggle to meet on common ground, and the
EUR/USD may consolidate ahead of the EU
Summit in February as the group weighs
different alternatives to strengthen the financial
system.
The British Pound slipped to a low of 1.5920
during the European trade, and the GBP/USD
may continue to consolidate over the next 24
hours of trading as economic activity in the U.K.
is expected to expand at a slower pace in the
fourth quarter. As the daily RSI falls back from a
high of 68, the pound-dollar may pare the sharp
rally from earlier this month, but the slew of
event risks coming out of the U.K this week is
likely to produce increased volatility in the
exchange rate as investors weigh the outlook for
future policy. With the Bank of England scheduled
to release its policy meeting minutes on
Wednesday, market reaction to the 4Q GDP
report could be short-lived as we expect the
central bank to adopt a highly hawkish outlook
for future policy, and the central bank may see
scope to start normalizing monetary policy later
this year as the economic recovery in Britain
gradually gathers pace. However, there could be
a growing split within the MPC as the
fundamental outlook remains clouded with
uncertainties, and we expect to see another 7-1-1
vote count as the committee struggles to meet
on common ground.
U.S. dollar price action was mixed on Monday,
with the USD/JPY advancing to a high of 82.91,
but the greenback may regains its footing during
the North American trade as we anticipate the rise
in risk aversion to fuel demands for the reserve
currency. As the economic docket remains bare
for the next 12 hours of trading, risk trends
should continue dictate price action in the foreign
exchange market, and we may see the drop in
risk appetite carry into the Asian trade as the
economic outlook for global growth remains
clouded with high uncertainty.
Source: Http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2011/01/24/01-24-11.html
Japanese Yen: Weakens Across The Board
British Pound: Consolidates Ahead of 4Q
GDP- Euro: ECB President Trichet Maintains
Dovish Outlook - U.S. Dollar: Mixed Against Major
Counterparts, Risk Aversion To Gather Pace
The Euro pared the rally from the previous week
and the single-currency may face increased
headwinds going into the North American trade
as European policy makers maintain a dovish
outlook for future policy. The EUR/USD fell back
from a high of 1.3629 and the exchange rate may
continue to retrace the advance from earlier this
month as the near-term rally appears to be
coming to a halt. The reversal in the relative
strength index reinforces a bearish outlook for the
next 24 hours of trading as the two-week rally
fails to push the oscillator above 70, and the
euro-dollar may test the 50.0% Fibonacci
retracement from the 2009 high to the 2010 low
around 1.3500 for support as price action
maintains the upward trend from the January low
(1.2873).
European Central Bank President Jean-Claude
Trichet continued to talk down the risk for
inflation during an interview with the Wall Street
Journal, and the dovish outlook held by the
central bank head could translate into further euro
weakness as investors weigh the prospects for
future policy. Mr. Trichet reiterated that monetary
policy remains “appropriate” despite the recent
rise in price growth, and went onto say that
second-round effects of higher commodity prices
should be contained as wage growth remains
subdued. As the ECB aims to encourage a
sustainable recovery, the central bank is likely to
maintain monetary support throughout the first-
half of the year, but the Governing Council could
be forced to support the real economy
throughout 2011 as the risk for contagion
intensifies. The lackadaisical approach to address
the debt crisis is likely to bear down on the
exchange rate as European policy makers
struggle to meet on common ground, and the
EUR/USD may consolidate ahead of the EU
Summit in February as the group weighs
different alternatives to strengthen the financial
system.
The British Pound slipped to a low of 1.5920
during the European trade, and the GBP/USD
may continue to consolidate over the next 24
hours of trading as economic activity in the U.K.
is expected to expand at a slower pace in the
fourth quarter. As the daily RSI falls back from a
high of 68, the pound-dollar may pare the sharp
rally from earlier this month, but the slew of
event risks coming out of the U.K this week is
likely to produce increased volatility in the
exchange rate as investors weigh the outlook for
future policy. With the Bank of England scheduled
to release its policy meeting minutes on
Wednesday, market reaction to the 4Q GDP
report could be short-lived as we expect the
central bank to adopt a highly hawkish outlook
for future policy, and the central bank may see
scope to start normalizing monetary policy later
this year as the economic recovery in Britain
gradually gathers pace. However, there could be
a growing split within the MPC as the
fundamental outlook remains clouded with
uncertainties, and we expect to see another 7-1-1
vote count as the committee struggles to meet
on common ground.
U.S. dollar price action was mixed on Monday,
with the USD/JPY advancing to a high of 82.91,
but the greenback may regains its footing during
the North American trade as we anticipate the rise
in risk aversion to fuel demands for the reserve
currency. As the economic docket remains bare
for the next 12 hours of trading, risk trends
should continue dictate price action in the foreign
exchange market, and we may see the drop in
risk appetite carry into the Asian trade as the
economic outlook for global growth remains
clouded with high uncertainty.
Source: Http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2011/01/24/01-24-11.html
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