الخميس، 27 سبتمبر، 2012

Euro Heavy As Spain Bond Auction Disappoints, OECD Sees More Easing


  • Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing
  • British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead
  • U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap

Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing
The Euro fell back from an overnight high of 1.3384 as Spain sold EUR 2.58B in three and six-month bills versus the EUR 3.00B target, and it seems as though the second Long Term Refinancing Operation is not having the desired effect as commercial banks across the euro-area continue to horde cash. In light of the recent developments, the Organization for Economic Cooperation and Development argued that the European Central Bank’s non-standard measures ‘may need to be widened to support the monetary transmission mechanism and maintain price stability,’ and the group went onto say that ‘the lack of effective policy action would open the way to a severe recession’ as the region struggles to stem the risk for contagion.
In response, ECB board member Jozef Makuch talked down speculation for more central bank loans and said that ‘the central bank considers as sufficient what it has done so far,’ but the Governing Council may have little choice but to expand its balance sheet further as the governments operating under the single currency become increasingly reliant on monetary support. Although the recent run up in the EURUSD negated our call for a head-and-shoulders top, it looks as though we’re getting a short-term correction in the euro-dollar following the failed run at 1.3400, and we may see the exchange rate track lower over the remainder of the week as the pair appears to be carving out a lower high going into mark. In turn, we may see the EURUSD revert back to the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100, but the weakening outlook for the euro-area may ultimately expose the 23.6% Fib around 1.2630-50 as European policy makers struggle to restore investor confidence.
British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead
The British Pound marked another failed run at 1.6000, with the GBPUSD stalling at an overnight high of 1.5997, and the GBPUSD looks primed for a short-term correction as it maintains the range carried over from the previous month. Meanwhile, Bank of England board member David Miles laid out a tentative exit strategy as he sees the Monetary Policy Committee lifting the benchmark interest rate off the record-low before winding down the balance sheet, but we may see Mr. Miles continue to push for more quantitative easing as he expects the ongoing slack within the real economy to dampen the outlook for inflation. Nevertheless, it seems as though the BoE will endorse a wait-and-see approach throughout the first-half of the year, and we may see the GBPUSD continue to face range-bound price action as market participants weigh the outlook for monetary policy.
U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap
The greenback regained its footing on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a high of 9,944, and the reserve currency may continue to gain ground during the North American trade should Fed officials talk down speculation for additional monetary support. As the central bank takes note of the more robust recovery, we should see Fed officials strike an improved outlook for the world’, but the economic docket may dampen the appeal of the USD as we’re expecting to see household sentiment fall back from a one-year high in March. In turn, a dismal confidence report could spark a bearish reaction in the dollar, and we may see the USDOLLAR threaten the upward trend carried over from the previous month as market participants maintain bets for more QE3.

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