The euro slipped to a low of 1.4683 during the Asian trade but retraced the overnight decline after finding intraday support ahead of the 20-Day moving average, and the rise in market sentiment may drive the exchange rate higher going into the U.S. trade as investors increase their appetite for higher-yielding assets.
Talking Points
• Japanese Yen: Three-Day Decline Stalls Ahead of 88.00
• Pound: Consumer Confidence Improves for Sixth Month
• Euro: Final 2Q GDP Disappoints
• US Dollar: Consumer Credit on Tap
Euro, British Pound Little Changed Ahead of ECB and BOE Interest Rate Decision
The euro slipped to a low of 1.4683 during the Asian trade but retraced the overnight decline after finding intraday support ahead of the 20-Day moving average, and the rise in market sentiment may drive the exchange rate higher going into the U.S. trade as investors increase their appetite for higher-yielding assets. Nevertheless, as the European Central Bank is widely expected to hold the benchmark interest rate at 1.00% and maintain its EUR 60B in covered bond purchases this week, the EUR/USD is likely to remain range-bound over the next 24 hours of trading as investors weigh the outlook for future policy.
The final 2Q GDP reading for the Euro-Zone showed economic activity weakened more than initially expected from the first three-months of the year, with the growth rate falling 0.2% amid an initial forecast for a 0.1% decline, and the data reinforces a weakened outlook for the region as policy makers see a risk for a slower recovery. Moreover, the annual rate of growth slipped 4.8% from the previous year, which exceeded forecasts for a 4.7% drop, while investments decline 1.5% versus an initial projection for a 1.3% decline, and businesses may continue to scale back on capital spending in an effort to weather the downturn in global trade. Meanwhile, a separate report showed German factory orders jumped 1.4% in August to top expectations for a 1.1% rise however, the annual rate slipped 20.4% from the previous year amid forecasts for a 20.0% drop. The data encourages an improved outlook for Europe’s largest economy as the nation emerges from the worst recession since the post-war period but nevertheless, as Bundesbank President Axel Weber projects growth prospects to remain subdued going into the following year, the economy is likely to face headwinds going forward as the outlook for future growth remains highly uncertain.
The British pound rose to a high of 1.5939 during the overnight session as household sentiment improved for the sixth consecutive month in September however, the currency failed to hold ground and weakened for the fifth day to reach low of 1.5860. Nevertheless, the GBP/USD continued to hold the narrow range from earlier this month and the pair is likely to hold steady ahead of the Bank of England interest rate decision tomorrow. The GfK consumer confidence index rose six points to 71 in September, which is the highest reading since April 2008, with the gauge for future expectations rising to 106 from 97 in the previous month to mark the highest level since December 2005. Moreover, the BRC shop price index decline 0.1% for the second consecutive month in September, led by a 0.7% drop in the price of fresh foods, while the price of non-food items increased 0.1% after rising 0.5% in the previous month.
U.S. dollar price action was mixed overnight, with the greenback falling to a fresh yearly low against the Aussie and the Kiwi, and the reserve currency may face increased selling pressures going into the North American trading session as equity futures foreshadow a higher open for the U.S. market. At the same time, the economic docket is likely to instill a weakening outlook for household spending as economists forecast consumer credit to fall $10.0B in August after falling at a record-pace during the previous month, and fears of a slower recovery is likely to weigh on the exchange rate as the outlook for future growth remains uncertain.
Will The EUR/USD Remain Above 1.4000? Join us in the Forurm
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
