- Euro: EU Meeting In Focus, ECB Warns Of Greek Debt Restructuring
- British Pound: BoE To Soften Dovish Tone, RSI Preserves Downward Trend
- U.S. Dollar: Continues To Benefit From Flight To Safety, Fed Rhetoric On Tap
Euro: EU Meeting In Focus, ECB Warns Of Greek Debt Restructuring
The Euro pared the rebound from earlier this week, with the EURUSD slipping to 1.2722 on Friday, and the single currency remains poised to face additional headwinds over the near-term as European policy makers persistently fail to draw up a credible solution to tackle the debt crisis.
As the EU convenes next week to avert a Greek default, hopes surrounding the November 20 meeting may spark a relief rally in the EURUSD, but these quick-fix measures will do little to improve the fundamental outlook for the euro-area as the debt crisis pushes the economy back into recession.
Indeed, European Central Bank (ECB) board member Jens Weidmann warned of another debt restructuring in Greece after the EU gave the periphery country a two-year extension in meeting its budget target, and argued that ‘a debt writedown itself wouldn’t solve the problems’ as the governments operating under the monetary union become increasingly reliant on external support.
As the EURUSD struggles to trade back above the 200-Day SMA (1.2807), the euro-dollar may continue to give back the rebound from the monthly low (1.2659), and we may see the exchange rate make another run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental outlook for the euro-area turns increasingly bleak.
British Pound: BoE To Soften Dovish Tone, RSI Preserves Downward Trend
The British Pound continued to pare the decline from earlier this week, with the GBPUSD advancing to a high of 1.5892, and the sterling may appreciate further in the days ahead should the Bank of England (BoE) Minutes sap bets for additional monetary support.
Although the BoE lowered its growth outlook for the U.K., the policy statement may sound less dovish this time around as the Monetary Policy Committee scales back its forecast for undershooting the 2% target for inflation. Indeed, we may see a growing number of central bank officials soften their dovish tone for monetary policy as price growth remains above target, and heightening price pressures in Britain may become a growing concern for the MPC as the economy emerges from the double-dip recession.
As the relative strength index on the GBPUSD continues to come off of oversold territory, the rebound from 1.5822 should gather pace in the week ahead, but we will need to keep a close eye on the oscillator as it maintains the downward trend carried over from back in September.
U.S. Dollar: Continues To Benefit From Flight To Safety, Fed Rhetoric On Tap
The greenback continued to gain ground on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) climbing to a high of 10,055, and the reserve currency may appreciate further during the North American trade should Fed policy makers talk down speculation for additional monetary support.
Indeed, Atlanta Fed President Dennis Lockhart has argued against tying monetary policy to specific fundamental goals even as central bank doves make a push for greater transparency, and we may see Mr. Lockhart talk down speculation for further easing as the world’s largest economy gets on a more sustainable path.
Fed's Dennis Lockhart Speaks on U.S. Economy
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--- Written by David Song, Currency Analyst
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