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Forex: Euro Weakness To Accelerate, British Pound Breaks Out

by DailyFX - Forex Market News on September 1, 2011

in Forex

Talking Points

  • Euro: Germany Pushes For Increased ESFS Oversight, ECB Under Scrutiny
  • British Pound: Breaks Out Of Bullish Formation As Growth Falters
  • U.S. Dollar: Jobless Claims Disappoint, ISM Manufacturing On Tap

Euro: ECB To Drop Hawkish Tone On Slower Growth, Inflation

The Euro extended the decline from earlier this week, with the exchange rate slipping to a low of 1.4262, and the reversal from 1.4548 may gather pace as there appears to be a growing rift amongst European officials. Bundesbank President Jens Weidmann argued that the European Central Bank needs to ‘scale back the extra risks monetary policy has taken on,’ while law makers in Germany made a push to have greater control over the European Financial Stability Facility as Parliament’s budget committee is scheduled to vote on the second bailout package for Greece later this month.

As European policy makers struggle to get their house in order, we are likely to see an increased reliance on the ECB to address the address the near-term risks for the region, but the Governing Council may come under increased scrutiny as it goes beyond its one and only mandate to ensure price stability. Nevertheless, the slowing recovery in Europe paired with the ongoing turmoil with the banking system may require the ECB to increase its nonstandard measures as investor confidence remains fragile. As a result, the EUR/USD may continue to retrace the advance from the previous month, and the euro-dollar may ultimately threaten the rebound from 1.3836 as we expect the central bank to strike a dovish tone at the interest rate decision scheduled for the following week.

British Pound: Gains Ground Despite Dovish BoE

The British Pound struggled to hold its ground as manufacturing weakened for the second month in August, and the GBP/USD may continue to give back the rebound from 1.5781 as it breaks out of the upward trending channel carried over from July. As the fundamental outlook for the U.K. deteriorates, the increased risk of a double-dip recession is likely to dampen demands for the sterling, and Pound may face additional headwinds over the near-term as market participants see the Bank of England expanding the asset purchase program beyond the GBP 200B target. With the BoE interest rate decision on tap for the following week, all of the 15 economists polled by Bloomberg News forecast the MPC to maintain its current policy in September, but market participants may show a bearish reaction to the rate decision as the central bank keeps the door open to expand monetary policy further. In turn, the recent selloff in the GBP/USD looks poised to gather pace in the days ahead, and the exchange rate may make another run at the 200-Day SMA at 1.6114 to test for near-term support.

U.S. Dollar: Jobless Claims Disappoint, ISM Manufacturing On Tap

The U.S. dollar gained ground during the overnight trade following the rise in risk aversion, and the shift in market sentiment may carry into the North American trade as equity futures foreshadow a lower open for the U.S. market. As the ISM manufacturing report is expected to signal the first contraction since July 2009, the data could further weigh on investor confidence, and we may see a more risk-driven reaction to the release, which could spur additional USD strength.

Meanwhile, the dismal jobless claims print certainly does not bode well for Friday’s Non-Farm Payroll report, where we’re expecting to see a slower pace of employment growth, and the reserve currency may consolidate going into Friday as market participants weigh the prospects of seeing a sustainable recovery. Should NFP’s disappoint, the Fed may show continue to talk up speculation for additional monetary support, and the central bank may lay out a detail set of tools to stimulate the ailing economy as the region faces a growing risk of falling back into a recession.

Will the EUR/USD Trend Sideways in September? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:45

9:45

Bloomberg Consumer Comfort Index (AUG 28)

-47

USD

14:00

10:00

ISM Prices Paid (AUG)

55.0

59.0

USD

14:00

10:00

ISM Manufacturing (AUG)

48.5

50.9

USD

14:00

10:00

Construction Spending (MoM) (JUL)

0.2%

0.2%

Currency

GMT

Release

Expected

Actual

Comments

NZD

22:45

Terms of Trade Index (QoQ) (2Q)

2.5%

2.3%

Highest since 3Q 2010.

AUD

23:30

AiG Performance of Manufacturing Index (AUG)

43.3

Contracts for second month.

CNY

1:00

PMI Manufacturing (AUG)

51.0

50.9

Two-month high.

NZD

1:00

ANZ Commodity Price (AUG)

-1.2%

Falls for third month.

AUD

1:30

Private Capital Expenditure (2Q)

4.0%

4.9%

Rises for four straight quarters.

AUD

1:30

Retail Sales s.a. (MoM) (JUL)

0.3%

0.5%

Increases for fourth time this year.

CNY

2:30

HSBC PMI Manufacturing (AUG)

49.9

Contracts for second month.

JPY

5:00

Vehicle Sales (YoY) (AUG)

-25.5%

Smallest decline since June.

EUR

5:30

French Mainland Unemployment Change (2Q)

-37K

Lowest rate of unemployment since 1Q 2009.

EUR

5:30

French ILO Mainland Unemployment Rate (2Q)

9.2%

9.1%

EUR

5:30

French ILO Unemployment Rate (2Q)

9.7%

9.6%

CHF

5:45

Gross Domestic Product (QoQ) (2Q)

0.4%

0.4%

Slowest rate of growth since the 2Q 2009 contraction.

CHF

5:45

Gross Domestic Product (YoY) (2Q)

2.3%

2.3%

EUR

6:00

German GDP s.a. (QoQ) (2Q F)

0.1%

0.1%

Slowest pace of growth since the contraction in 1Q 2009, dragged by the slowdown in private sector activity.

EUR

6:00

German GDP w.d.a. (YoY) (2Q F)

2.7%

2.7%

EUR

6:00

German GDP n.s.a. (YoY) (2Q F)

2.8%

2.8%

EUR

6:00

German Private Consumption (2Q)

-0.2%

-0.7%

EUR

6:00

German Domestic Demand (2Q)

0.4%

EUR

6:00

German Capital Investment (2Q)

0.8%

0.3%

EUR

6:00

German Government Spending (2Q)

-0.1%

0.2%

EUR

6:00

German Construction Investment (2Q)

-1.4%

-0.9%

EUR

6:00

German Exports (2Q)

1.6%

2.3%

EUR

6:00

German Imports (2Q)

2.3%

3.2%

GBP

6:00

Nationwide House Prices s.a. (MoM) (AUG)

0.0%

-0.6%

First decline since April.

GBP

6:00

Nationwide House Prices n.s.a. (YoY) (AUG)

0.4%

-0.4%

AUD

6:30

RBA Commodity Price Index (AUG)

113.3

Slowest pace of growth since March 2010.

AUD

6:30

RBA Commodity Index SDR (YoY) (AUG)

25.2%

CHF

7:15

Retail Sales (Real) (YoY) (JUL)

1.9%

Rises for the fourth time this year.

CHF

7:30

SVME-Purchasing Managers Index (AUG)

51.0

51.7

Lowest since August 2009.

EUR

7:45

Italian PMI Manufacturing (AUG)

49.0

47.0

Contracts for the first time since September 2009.

EUR

7:50

French PMI Manufacturing (AUG F)

49.3

49.1

EUR

7:55

German PMI Manufacturing (AUG F)

52.0

50.9

EUR

8:00

Euro-Zone PMI Manufacturing (AUG F)

49.7

49.0

EUR

8:00

Italian Hourly Wages (MoM) (JUL)

0.0%

Holds flat for the third time this year.

EUR

8:00

Italian Hourly Wages (YoY) (JUL)

1.8%

1.7%

GBP

8:30

PMI Manufacturing (AUG)

49.0

49.0

Contracts for second month.

USD

12:30

Non-Farm Productivity (2Q F)

-0.5%

-0.7%

Biggest decline since 3Q 2008.

USD

12:30

Unit Labor Costs (2Q F)

2.3%

3.3%

Rises for second straight quarter.

USD

12:30

Initial Jobless Claims (AUG 27)

410K

409K

Holds above 400K for third week.

USD

12:30

Continuing Claims (AUG 20)

3681K

3735K

Stays above 3700K for third week.

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