6 окт. 2010 г.

Forex: Euro Falls Back As Fitch Cuts Credit Rating For Ireland, Bearish Sentiment Behind U.S. Dollar Gathers Pace

The Euro slipped to a low of 1.3797 during the overnight trade as Fitch Ratings lowered its sovereign debt rating for Ireland to A+ from AA-, and the single-currency may consolidate over the next 24 hours of trading as investors wait for the European Central Bank interest rate decision on Thursday. As the advance in the EUR/USD stalls ahead of 1.3890-1.3900, the 61.8% Fibonacci retracement from the 2009 high to the 2010 low, the single-currency may carve out a near-term top in the days ahead as the recent rally remains overbought. The ECB is widely expected to hold the benchmark interest rate at 1.00% this month, but investors will certainly turn their attention to the press conference with President Jean-Claude Trichet as they weigh the outlook for future policy.


We expect the Mr. Trichet to maintain a cautious outlook for the region as policy makers see the economic recovery tapering off, and the central bank head is likely to talk down the risks for inflation as he expects price growth to remain subdued going into 2011. However, a shift in the Governing Council’s economic assessment is likely to stoke increased volatility in the exchange rate, and the board may adopt an increasingly dovish tone as the outlook for future growth remains clouded with uncertainties. Nevertheless, the final 2Q GDP reading for the Euro-Zone showed economic activity expanded 1.0% from the first three-months of the year, which was largely in-line with expectations. However, the breakdown showed household consumption tipped 0.2% higher amid an initial forecast for a 0.5% rise, while gross fixed capital formations increased 1.5% versus earlier projections for a 1.8% expansion, and the ongoing weakness in the private sector could lead the ECB maintain a loose policy stance throughout the beginning of 2011 as it aims to encourage a sustainable recovery.


The British Pound fell back from a high of 1.5938 during the European trade to maintain the narrow range carried over from the previous month, and the GBP/USD is likely to hold steady ahead of the Bank of England interest rate decision due out tomorrow. The BoE is anticipated to hold the benchmark interest rate at 0.50% and maintain its asset purchase target at GBP 200B this month, but the central bank may refrain from releasing a policy statement, which could produce muted price action for the event. As a result, the GBP/USD may trend steady in the coming days until we get the BoE policy meeting minutes due out on October 20, and we expect board member Andrew Sentance to push for a 25bp rate hike as inflation continues to hold above the government’s 3% limit for price growth. However, if we see a three-way split within the MPC, speculation for further easing is likely to generate a bearish breakout in the exchange rate, which could lead the GBP/USD to retrace the advance from the previous month.


The greenback weakened across the board, with the USD/JPY slipping to a fresh yearly low at 82.72, and the bearish sentiment surrounding the dollar may carry into the end of the week as the economic docket is expected to reinforce a weakened outlook for future growth. The ADP employment report showed private payrolls unexpectedly slipped 39K in September amid forecasts for a 20K rise, and the data does not bode well for Friday’s non-farm payrolls report given the underlying weakness in the U.S. labor market. Nevertheless, risk trends may play a greater role in driving price action for the major currencies on Wednesday given the soft batch of economic event risks, and a shift in risk sentiment could prop up the greenback as it benefits from safe-haven flows.

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