2013-07-19 12:30 GMT (or 14:30 MQ MT5 time) | [CAD - Consumer Price Index (CPI)]
If actual > forecast = good for currency (for USD in our case)
USD/CAD - Trading the Canada Consumer Price Report :
Time of release: 07/19/2012 12:30 GMT, 8:30 EDT
Primary Pair Impact: USDCAD
DailyFX Forecast: 1.0% to 1.2%
Why Is This Event Important:
The headline reading for Canadian inflation is
expected to increase an annualized 1.2% in May, and the pickup in price
growth may heighten the appeal of the loonie should the data renew bets
for higher borrowing costs. Although we’re seeing the Bank of Canada
(BoC) retain a cautious outlook for the region, a faster rate of
inflation may encourage Governor Stephen Poloz
to adopt a more hawkish tone over the coming months, and the central
bank may normalize policy further over the medium-term as the economy.
Firms in Canada may look to raise consumer prices
amid the underlying strength in job growth along with the expansion in
private sector credit, and a positive development may heighten the
appeal of the Canadian dollar should the data spark bets for a rate
hike. However, the slowdown in private sector consumption paired with
easing input costs may drag on price growth, and a weak inflation print
may keep the BoC on the sidelines for an extended period of time as the
central bank aims to encourage a stronger recovery.
Potential Price Targets For The Release
As the USDCAD breaks out of the consolidation phase
dating back to 2011, we should see the upward trending channel continue
to take shape over the near to medium-term, but we may see a move back
towards trendline support should Canada’s CPI report renew bets for a
BoC rate hike. However, we will look to buy dips in the USDCAD as the
bullish trend takes shape, and we may see another run at the 1.0600
handle amid the deviation in the policy outlook.
How To Trade This Event Risk
Forecasts for a faster rate of inflation highlights a
bullish outlook for the loonie, and the market reaction may set the
stage for a long Canadian dollar trade as it fuels bets for a rate hike.
Therefore, if consumer prices increase 1.2% or greater in June, we will
need a red, five-minute candle following the release to establish a
sell entry on two-lots of USDCAD. Once these conditions are fulfilled,
we will place the initial stop at the nearby swing high or a reasonable
distance from the entry, and this risk will generate our first target.
The second objective will be based on discretion, and we will move the
stop on the second lot to cost once the first trade hits its mark in
order to lock-in our profits.
However, the slowing recovery may continue to drag
on price growth, and a dismal print may prompt a bearish reaction in the
Canadian dollar as market participants scale back bets for higher
borrowing costs. As a result, if the CPI disappoints, we will implement
the same setup for a long dollar-loonie trade as the short position
mentioned above, just in reverse.
Consumer prices in Canada increased an annualized
0.7% during the month of May after expanding 0.4% the month prior, while
the core rate of inflation held steady an 1.1% amid forecasts for a
1.2% print. Indeed, the weaker-than-expected release dragged on the
Canadian dollar, with the USDCAD climbing above the 1.0475 region, but
we saw the loonie consolidate during the North American trade as the
pair ended the day at 1.0455.
If actual > forecast = good for currency (for CAD in our case)
Canada June Consumer Price Index Report :
The following is the text of
Canada’s consumer price index report for June released
by Statistics Canada.
The Consumer Price Index (CPI) rose 1.2% in the 12 months
to June, following a 0.7% increase in May. This 0.5 percentage
point gain in the CPI was led by transportation prices, which
rose 2.0% on a year-over-year basis in June after falling 0.5%
The acceleration in the transportation index was mostly
attributable to prices for gasoline and for the purchase of
passenger vehicles, both of which rose in the 12 months to June
after declining in May.
Compared with June last year, gasoline prices were up 4.6%.
This followed a 1.5% decrease in May. Gasoline prices increased
in the 12 months to June in all provinces, with Manitoba and
Alberta posting the largest gains.
Prices for the purchase of passenger vehicles rose 2.0% in
the 12 months to June, after declining 0.5% in May. The year-over-year increase in June was mainly attributable to smaller
monthly price declines in June 2013 compared with the same month
Consumer prices rose in six of the eight major components
in the 12 months to June. The exceptions were health and
personal care as well as recreation, education and reading. In
addition to transportation, the shelter and food components led
the increase in the CPI in June.
Shelter costs rose 1.2% in the 12 months to June, after
increasing 1.3% in May. Natural gas prices and rent increased on
a year-over-year basis in June, while mortgage interest cost
Food prices increased 1.2% year over year in June,
following a 1.3% rise in May. Compared with June 2012, consumers
paid 1.3% more for food purchased from stores, as prices rose
for fresh vegetables (+5.1%) and meat (+2.2%). In contrast,
prices for sugar and confectionery declined 4.3%.
Consumers also paid 1.1% more for food purchased from
Consumer prices rose in nine provinces in the 12 months to
June, with the largest increase occurring in Manitoba. The
exception was British Columbia, where prices declined on a year-over-year basis.
In Manitoba, consumer prices increased 2.7% year over year
in June, following a 1.8% gain in May. Gasoline prices rose
10.7% in the 12 months to June, after advancing 0.9% in May.
Among the provinces, Manitoba posted the largest year-over-year
price increase for cigarettes and for passenger vehicle
Alberta’s CPI rose 2.3% on a year-over-year basis in June,
matching the increase in May. Gasoline prices advanced at a
faster rate in the 12 months to June (+9.2%) compared with May
(+1.6%). Conversely, smaller year-over-year price increases were
observed for natural gas in June relative to May.
Prices in British Columbia fell 0.5% in the 12 months to
June, after declining 0.6% in May. The province posted year-over-year price decreases for food purchased from restaurants
and homeowners’ replacement cost, while at the national level
these indexes increased. Additionally, gasoline prices rose 3.2%
year over year in June, after increasing 1.4% in May, a smaller
acceleration than at the national level.
On a seasonally adjusted
monthly basis, the CPI increased 0.3% in June, after rising 0.2%
The seasonally adjusted indexes for six of the eight major
components increased in June. The two exceptions were alcoholic
beverages and tobacco products, which declined 0.1%, and
clothing and footwear, which posted no change. The
transportation index rose 1.6% in June, following a 0.2%
increase in May.
The Bank of Canada’s core index
(http://www.statcan.gc.ca/pub/62-001-x/2013006/technote-notetech2-eng.htm) rose 1.3% in the 12 months to June, following
a 1.1% increase in May.
On a monthly basis, the seasonally adjusted core index
increased 0.2% in June, after posting no change in May.
A seasonally adjusted series is one from which seasonal
movements have been eliminated. Users employing CPI data for
indexation purposes are advised to use the unadjusted indexes.
For more information on seasonal adjustment, see Seasonal
adjustment and identifying economic trends
China Removes Floor on Lending Rates as Economy Cools :
China will remove the floor on
lending rates offered by the nation’s financial institutions as
economic growth slows and authorities push forward steps to
give banks more freedom to set borrowing costs.
The People’s Bank of China will also remove the cap on
lending rates offered by rural cooperatives, the central bank
said in a statement on its website today. The actions are
While the move temporarily jolted world stocks higher, the
PBOC itself acknowledged that it was a limited step, and that
the liberalization of deposit rates would be more important. The
shift came just as central bankers and finance ministers from
Group of 20 nations gather for meetings in Moscow.
“Most observers would be disappointed to find out that it
was only the removal of the lending rate floor,” said Ken Peng,
senior economist at BNP Paribas SA in Beijing.
Raising the deposit-rate ceiling would improve household
incomes and reduce the attractiveness of non-traditional wealth
management products while threatening banks’ profit margins,
Peng said. “This decision shows that some reform is being done,
but may actually reduce the chances for deposit-rate
liberalization in the near term,” he said.
Don’t Fight the Fed - Bernanke’s Words Will Drive US Dollar Lower :
Fundamental Forecast for US Dollar: Bearish
The US Dollar fell against major currencies except the Japanese Yen as the S&P 500 surged to fresh record-highs, and dovish commentary from Fed Chairman Ben Bernanke suggests the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) could fall to fresh lows.
Bernanke put a significant damper on expectations that the Federal Open Market Committee (FOMC) would “taper” its Quantitative Easing measures through its upcoming meetings, and the result was enough to force the Dollar lower across the board. Stock markets likewise breathed a sigh of relief and traders were happy to send the S&P 500 to fresh record peaks. A broader lull in volatility suggests we could see further Dollar weakness and S&P gains through the weeks ahead.
Why might volatility remain low and—just as importantly—what could disturb the market lull?
It all starts and ends with the US Federal Reserve. Bernanke’s infamous “taper” bombshell sparked a financial market panic and sent the Dow Jones FXCM Dollar Index to its highest levels in three years. It seems fitting to note that the dovish shift in Fed commentary has caused similar market ease, and the USDOLLAR fell sharply when Bernanke backtracked on the taper talk. Put simply, the Dollar’s next moves will almost certainly depend on similar shifts from the Fed. As things stand, the Greenback could fall further off of recent peaks.
The coming week’s calendar won’t provide much in the way of potentially market-moving event risk, and indeed that supports the case for low volatility and USD weakness. Possible exceptions include the weekend’s Japanese upper house elections and a late-week US Durable Goods Orders report.
Japan’s elections are likely to cement Prime Minister Abe’s hold of power and reaffirm commitment to so-called “Abenomics”—extremely loose monetary policy and expansionary fiscal policy that has sunk the Japanese Yen. Though unlikely, any surprises could force a substantial Japanese Yen bounce (USDJPY weakness), but financial market volatility could mean Dollar strength elsewhere.
Traders otherwise look to the week’s US Durable Goods orders report to gauge the health of domestic investment activity and future economic growth. We wouldn’t normally watch for big moves on surprises, but the market has become so data-dependent that any particularly big misses could force sharp Dollar moves. Consensus forecasts call for a respectable gain in both the headline figure and the less volatile “Ex-Transportation” result. If we see a sharply better-than-expected gain, the Greenback would likely rally.
There’s a popular saying among traders that seems to hold true in current conditions: “Don’t fight the Fed.” Initially it seemed as though the Fed was likely to begin withdrawing Quantitative Easing measures almost immediately, and all QE-linked trades pulled back sharply. Since then, however, Bernanke and co. have made clear that the next move will have to come on strong economic data.
Here’s what your stockbroker and the media aren’t telling you: the world
is more indebted now than it was at the height of the financial bubble
in 2007. That’s right. Despite the extraordinary government intervention
of the past six years. Despite continuing optimism of a recovery.
Despite the reassuring words of central bankers. We’re worse off in debt
From this, there are several inevitable conclusions that will be discussed in depth in this piece:
Lashing central bankers
It’s been surreal to watch news of Detroit’s bankruptcy this week. Once
the bastion of a thriving American automobile industry, the city is
now on its knees. Meanwhile, U.S. stock market indices are hitting
all-time highs. Compare and contrast…
But it’s also been fascinating to see the commentary around the
bankruptcy. Much of this commentary blamed a sharply declining
population for the crisis and a host of other reasons. Less mentioned
though was the real reason for the bankruptcy: Detroit simply spent far
more than earned. And it went deeper into debt to finance the
spending, until it could no more.
It’s not entirely surprising that this has been largely overlooked and
that Detroit is being treated as an isolated case. That’s what
politicians in the U.S. and across the developed world want you to
believe. That debt isn’t a big deal and that they can help their cities
and countries grow their way out of indebtedness, but they just need a
bit more time to achieve this
However, a recent report by the Bank Of International Settlements (BIS)
– often referred to as the central banks’ bank – shows how difficult
this task will be. The BIS annual report outlines, in a clear and often
confronting way, the realities of the world’s indebtedness and how
current money printing and low interest policies won’t fix the problems
emanating from 2008. The BIS has credibility as it was one of the very
few institutions to warn of excesses in the lead up to the financial
crisis. I can’t recommend the report highly enough.
Let’s have a look at some of the report’s key passages. First, the BIS
details the extent of the world’s debt problem. It says total debt in
large developed market and emerging market countries is now 20% higher
as a percentage of GDP than in 2007. In total, the debt in these
countries is US$33 trillion higher than back then. Almost none of the
countries that it monitors are better off than 2007 in debt to GDP
The BIS describes the level of debt as clearly unsustainable. The
primary reason is that studies have repeatedly shown that once debt to
GDP rises above 80%, it retards economic growth. Obviously, if money is
being spent on servicing debt, then there’s less to spend on
investment etc. Most developed market economies now have debt to GDP
levels exceeding 100%.
The BIS says governments need to quickly get their balance sheets in
order and does some math to prove why. It says current long-term bond
yields for major advanced economies are around 2%, well below the
average of the two decades leading up to the crisis of 6%.
If yields were to rise just 300 basis points across the maturity
spectrum (and still be below average), the losses would be enormous.
Under this scenario, holders of U.S. Treasury securities would lose
more than US$1 trillion dollars, or almost 8% of U.S. GDP. The losses for holders of debt in France, Italy, Japan and the U.K. would range from 15% to 35% of GDP.
Being the primary holders of this debt, banks would be the biggest
losers and ultimately such losses would pose risks for the entire
The BIS doesn’t let emerging countries off the hook either. It suggests
that while debt may be lower in these countries, they’ve benefited
from rising asset and commodity prices, which are unlikely to be
sustainable. And therefore caution is warranted here too.
But now we get to the juicy bit where the BIS calls the extraordinary
policies of developed market central banks into question. For a
conservative institution such as the BIS, the language is nothing short
“What central bank accommodation has done during the recovery is to
borrow time – time for balance sheet repair, time for fiscal
consolidation, and time for reforms to restore productivity growth. But
the time has not been well used, as continued low interest rates and
unconventional policies have made it easy for the private sector to
postpone deleveraging, easy for the government to finance deficits, and
easy for the authorities to delay needed reforms in the real economy
and in the financial system. After all, cheap money makes it easier to
borrow than to save, easier to spend than to tax, easier to remain the
same than to change.”
And then this:
“Governments hope that if they wait, the economy will grow, driving
down the ratio of debt to GDP. And politicians hope that if they wait,
incomes and profits will start to grow again, making the reform of
labour and product markets less urgent. But waiting will not make
things any easier, particularly as public support and patience erode.”
The BIS recommends urgent, broad-based reforms which principally
involve cutting back on regulation to allow high-productivity sectors
to flourish and for growth to return. It also says households need to
makes further cuts to their debts while governments also need to get
their balance sheets in order. And regulators need to make sure banks
have the capital to absorb any risk of potential losses of the type
The math of debt
It’s worth elaborating on why the current path appears unsustainable,
as the BIS alludes too. Put simply, debt is a promise to deliver money.
If debt rises faster than money and income, it can do this for a while
but there comes a cut-off point when you can’t service the debt. When
that happens, you have to cut back on the debt, or deleverage in
There are four ways to deleverage:
Forex - Weekly outlook: July 22 - 26 :
The dollar was higher against the yen on Friday and slipped lower
against the euro after comments by Federal Reserve Chairman Ben Bernanke
earlier in the week eased concerns over how soon the bank will start
tapering its easing program. USD/JPY
hit session highs of 100.87, the highest since July 10, before slipping
back to settle at 100.61, 0.18% higher for the day and up 0.66% for the
week.The yen weakened ahead of weekend elections in Japan’s
upper house, which were expected to deliver a victory for Prime Minister
Shinzo Abe, allowing him to continue to push through a series of
economic reforms aimed at spurring growth and fighting deflation. EUR/USD hit highs of 1.3154 on Friday, before settling at 1.3139, up 0.23% for the day and 0.62% higher for the week.Demand
for the dollar continued to be underpinned after Bernanke indicated
Wednesday that the bank still expects to start tapering its asset
purchase program by the end of the year.In the first day of his
semi-annual testimony to Congress Bernanke said the central bank could
scale back its asset purchases by the end of the year if the economy
continues to improve, but added that there was no “preset course.”Bernanke
said the economic recovery was continuing at a moderate pace but
reiterated that monetary policy will remain accommodative for the
foreseeable future.The pound rose to two week highs against the dollar on Friday, with GBP/USD climbing 0.29% to settle at 1.5268, extending the week’s gains to 1.15%.Earlier
in the week, the minutes of the Bank of England’s July meeting showed
that policymakers voted unanimously to keep the bank’s quantitative
easing program unchanged, ahead of a decision next month on whether to
provide forward guidance on future interest rates.Elsewhere, the Canadian dollar edged higher Friday, with USD/CAD slipping 0.11% to settle at 1.0367, shrugging off soft Canadian inflation data for June.Statistics
Canada said consumer price inflation rose 1.2% in June from a year
earlier, well below the Bank of Canada’s 2% target, with core inflation
rose 1.3% on a year-over-year basis.Meanwhile, the Australian
and New Zealand dollars found support after China’s central bank said it
was removing the lower limit on interest rates for banks, to help banks
attract more borrowers. AUD/USD hit session highs of 0.9235, before trimming gains to settle at 0.9180, 0.11% higher for the day and 0.99% higher for the week. NZD/USD
hit highs of 0.7990 early in Friday’s session before slipping back to
close at 0.7931, 0.38% higher for the day and up 1.68% for the week.In
the week ahead, the U.S. is to publish data on the housing sector and
manufacturing, while an interest rate decision by New Zealand’s central
bank will also be in focus. The U.K. is to release what will be closely
watched data on second quarter growth and the euro zone is to produce
data on manufacturing and service sector activity.Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.Monday, July 22The U.S. is to publish private sector data on existing home sales, an important economic indicator.Tuesday, July 23The U.K. is to release a report on mortgage approvals, an important indicator of demand in the housing sector.Canada
is to produce official data on retail sales, the government measure of
consumer spending, which accounts for the majority of overall economic
activity.Wednesday, July 24New Zealand and Japan are to release official data on the trade balance, the difference in value between imports and exports.Australia is to produce government data on consumer price inflation, which accounts for the majority of overall inflation.China is to publish the preliminary reading of the HSBC manufacturing index, a leading economic indicator.The
euro zone is to release preliminary data on manufacturing and service
sector activity, while Germany and France are also to publish individual
reports.The U.K. is to print private sector data on industrial order expectations, an important economic indicator.Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.Thursday, July 25The
Reserve Bank of New Zealand is to announce its benchmark interest rate
and publish its rate statement, which outlines economic conditions and
the factors affecting the monetary policy decision.In the euro
zone, Spain is to release official data on the unemployment rate. The
Ifo Institute is to publish its index of German business climate.The
U.K. is to publish preliminary data on second quarter gross domestic
product, the broadest indicator of economic activity and the leading
measure of the economy’s health.The U.S. is to publish
government data on durable goods orders, a leading indicator of
production, as well as the weekly government report on initial jobless
claims.Friday, July 26Japan is to release official data on consumer price inflation.In the euro zone, Germany is to publish official data on retail sales and import prices.The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan.
I made this weekly technical analysis for AUDUSD here and it may be good to compare it with weekly techinical analysis which was made by one of the popular forex portal.
AUD/USD weekly outlook: July 22 - 26
The Australian dollar ended Friday’s session modestly higher against its
U.S. counterpart, after comments by Federal Reserve Chairman Ben
Bernanke earlier in the week eased concerns over how soon the bank will
start tapering its easing program. AUD/USD
hit 0.9291 on Wednesday, the pair’s highest since July 11; the pair
subsequently consolidated at 0.9176 by close of trade on Friday, up
0.11% on the day and 1.37% higher for the week.The pair is likely to find support at 0.9088, the low from July 16 and resistance at 0.9291, the high from July 17.In
the first day of his semi-annual testimony to Congress Bernanke said
the central bank could scale back its asset purchases by the end of the
year if the economy continues to improve, but added that there was no
“preset course.”Bernanke said the economic recovery was
continuing at a moderate pace but reiterated that monetary policy will
remain accommodative for the foreseeable future.The Aussie was
also supported after China’s central bank said on Friday that it was
removing the lower limit on interest rates for banks, in an effort to
help lenders attract more borrowers and spur economic activity.China is Australia's biggest export partner.Meanwhile,
in Australia, the minutes of the Reserve Bank of Australia's latest
policy meeting released on Wednesday showed that policymakers believe
the current stance of the bank's policy to be appropriate.The RBA also said the inflation outlook was “slightly higher” due to the Aussie’s recent drop.In
the week ahead, the U.S. is to publish data on the housing sector and
manufacturing, while China is also scheduled to release data on
manufacturing activity.Ahead of the coming week, Investing.com
has compiled a list of these and other significant events likely to
affect the markets. The guide skips Tuesday as there are no relevant
events on this day.Monday, July 22The U.S. is to publish private sector data on existing home sales, an important economic indicator.Wednesday, July 24Australia is to produce government data on consumer price inflation, which accounts for the majority of overall inflation.China is to publish the preliminary reading of the HSBC manufacturing index, a leading economic indicator.Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.Thursday, July 25The
U.S. is to publish government data on durable goods orders, a leading
indicator of production, as well as the weekly government report on
initial jobless claims.Friday, July 26The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan.
EUR/USD weekly outlook: July 22 - 26 :
The euro pushed higher against the dollar in thin trade on Friday but
dollar demand continued to be supported amid expectations that the
Federal Reserve will start to scale back its asset purchase program
later this year. EUR/USD hit highs of 1.3154 on Friday, before settling at 1.3139, up 0.23% for the day and 0.62% higher for the week.The pair is likely to find support at 1.3065, Thursday’s low and resistance at 1.3177, the high of July 17.Demand
for the dollar continued to be underpinned after Fed Chairman Ben
Bernanke indicated Wednesday that the bank still expects to start
tapering its asset purchase program by the end of the year.In
the first day of his semi-annual testimony to Congress Bernanke said the
central bank could scale back its USD85 billion-a-month bond buying
program by the end of 2013 if the economy continues to improve, but
added that there was no “preset course.”Bernanke said the
economic recovery was continuing at a moderate pace but reiterated that
monetary policy will remain accommodative for the foreseeable future.Elsewhere, the euro was higher against the yen on Friday, with EUR/JPY advancing 0.39% to 132.19 at the close of trade, extending the week’s gains to 1.28%.The
yen was broadly weaker ahead of weekend elections in Japan’s upper
house, as opinion polls indicated that Prime Minister Shinzo Abe’s
Liberal Democratic Party would claim victory.A victory would
allow Prime Minister Abe to continue to push through a series of
structural reforms aimed at spurring economic growth and fighting
deflation.In the week ahead, the U.S. is to publish data on the
housing sector and manufacturing, while euro zone data on manufacturing
and service sector activity will also be closely watched.Ahead
of the coming week, Investing.com has compiled a list of these and other
significant events likely to affect the markets.The guide skips Tuesday
as there are no relevant events on this day.Monday, July 22The U.S. is to publish private sector data on existing home sales, an important economic indicator.Wednesday, July 24The
euro zone is to release preliminary data on manufacturing and service
sector activity, while Germany and France are also to publish individual
reports.Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.Thursday, July 25In
the euro zone, Spain is to release official data on the unemployment
rate. The Ifo Institute is to publish its index of German business
climate.The U.S. is to publish government data on durable goods
orders, a leading indicator of production, as well as the weekly
government report on initial jobless claims.Friday, July 26In the euro zone, Germany is to publish official data on retail sales and import prices.The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan
As the trading week is just started so this is the other mini-article related to the situation on the market.
USDJPY Eyes Higher High on Policy Outlook- EU Summit on Tap :
Japanese Yen: BoJ to Adjust Policy as Need, More Easing Ahead
The Japanese Yen weakened further on Friday, with the USDJPY
advancing to an overnight high of 98.12, and the low-yielding currency
looks poised to give back the rebound carried over from the previous
month amid the deviation in the policy outlook.
As the Bank of Japan (BoJ) moves to the sidelines, Governor Haruhiko Kuroda
pledged to make policy adjustments as needed, and went onto say that
the central bank will continue to pursue its easing cycle in order to
achieve the 2% target for inflation.
In turn, the deviation in the policy outlook
should prop up the USDJPY over the near to medium-term, and the pair
looks poised to make a more meaningful run at the 104.00 handle as it
carves out a higher low in June.
Euro: EU Scales Back on Austerity, EIB to Offer EUR 100B to SMEs
Indeed, the finance ministers meeting in Luxembourg failed to prop up the Euro, with the EURUSD slipping to a low of 1.3144, and the single currency may weaken further ahead of the EU Summit on June 27-28 as European policy makers preserve a reactionary approach in addressing the risks surrounding the region.
At the same time, there are reports that the European Investment Bank and the European Commission ‘are also working with the ECB to develop an EU strategy to alleviate the financing constraints for SMEs,’
which would include a EUR 100B lending program for small to
medium-sized businesses, and we may see European policy makers continue
to draw on external support as they struggle to get their house in
As the group of finance ministers scale back their
push for austerity, we are likely to see the EU make further attempts to
buy more time, and the European Central Bank (ECB)
may come under increased pressure to further embark on its easing cycle
as the periphery countries become increasingly reliant on monetary
As a result, the fundamental developments coming out
of the region may continue to dampen the appeal of the single currency,
and the pull back from 1.3415 may turn into a larger correction as the
relative strength index on the EURUSD falls back from overbought
territory. In turn, we should see the EURUSD come up against the 38.2%
Fibonacci retracement from the 2009 high to the 2010 low around 1.3120
to test for interim support, but we may see a move back towards the
23.6% retracement (1.2970) as European policy makers struggle to restore
British Pound: To Consolidate Further Ahead of Next BoE Meeting
The British Pound pared the rebound from earlier this week, with the GBPUSD falling back to 1.5421, and we may see the sterling continue to consolidate ahead of the next Bank of England (BoE) interest rate decision on July 4 as Mark Carney takes the helm at the central bank.
Although there’s bets that Mr. Carney will implement
a grow target for the BoE, it seems as though the majority of the
Monetary Policy Committee will stick to the inflation-targeting frame
work as the region continues to face above-target price growth, and we
may see the central bank move further away from its easing cycle in the
second-half of the year as it sees a slow but sustainable recovery in
In turn, it looks as though the upward trending
channel dating back to March will continue to take shape in the
second-half of the year, and we may see the sterling outperform against
its major counterparts as the BoE keeps its asset-purchase program
capped at GBP 375.