By David Song, Currency Analyst Mon Sep 27 12:00:00 GMT 2010 
Talking Points
Japanese Yen: Weighed By Risk Appetite Pound: Home Prices Fall For Third Month Euro: Looks To Target 50.0% Fib at 1.3500 U.S. Dollar: Chicago Fed, Dallas Fed Index on Tap The Euro bounced back from a low of 1.3425 during the overnight trade following a risk appetite and the single-currency may continue to push higher going into the North American session as the economic docket remains fairly light for Monday. However, as the EUR/USD struggles to push above the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500, the single-currency may hold within a narrow range unless we see a shift in market sentiment. Indeed, daily studies show that the euro remains overbought following the recent rally from earlier this month, and a corrective retracement may unfold this week as the daily relative strength index falls back from a high of 74. Meanwhile, the Organization for Economic Co-operation and Development held a cautious outlook for Portugal and said that the debt crisis has weakened the growth prospects for the region as increasing spreads amongst government debt dampens the recovery. As a result, the group encouraged European policy makers to increase taxes while scaling back on public spending, and the ongoing weakness in public finances could the central bank to support the economy going into 2011 as it aims to balance the risks for the region. Nevertheless, as the Irish government is scheduled to announce the cost of saving Anglo Irish Bank Corp. later this week, concerns surrounding the European banking system could spur bearish sentiment towards the single-currency and spark a pullback in the exchange rate as the EUR/USD finds resistance around 1.3500. The British Pound tipped higher during the European trade to reach a fresh monthly high of 1.5852, and the sterling may continue to appreciate throughout the day as the exchange rate clears the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700. As the pound-dollar breaks out of its recent range, price action looks poised to make another run towards 1.6000 as it continues to retrace the decline from the previous month. However, there could be a corrective retracement in the days ahead as the RSI approaches overbought territory, and we may see the GBP/USD carve out a double-top if price action fails to push above 1.6000. As the Bank of England is widely expected to maintain its current policy throughout the remainder of the year, a shift in the vote count remains the only catalyst that could trigger another bullish breakout in the pound-dollar as board member Andrew Sentance continues to push for a 25 rate hike, but a three-way split within the MPC would weigh on the exchange rate as investors speculate the BoE to expand quantitative easing in the coming months. Meanwhile, the economic docket showed home prices in the U.K. weakened for the third month in September, with the Hometrack survey falling 0.4% after contracting 0.3% in the previous month, and the ongoing weakness in the housing market may lead the BoE to support the economy going into the following year as policy makers expect the slack within the economy to bear down on inflation. U.S. dollar price action was mixed overnight, with the USD/JPY tipping to a low of 84.12, and the rebound in market sentiment could drag on the greenback as equity futures foreshadow a higher open for the U.S. market. Nevertheless, the Chicago Fed National Activity index is forecasted to fall back to -0.50 in August from 0.0 in the previous month, while the Dallas Fed Manufacturing survey is projected to increase to -7.0 in September from -13.5 in the month prior, and the mixed batch of data could spur choppy price action amongst the majors as investors weigh the prospects for future growth. Will the EUR/USD Retrace The Rally From Earlier This Month? Join us in the Forum Related Articles: Dollar Loses Growth, Yield and Now Safe Haven Appeal To discuss this report contact David Song, Currency Analyst:dsong@fxcm.com FX Upcoming Chicago Fed National Activity Index (AUG) Dallas Fed Manufacturing Activity (SEP) Hometrack Housing Survey (MoM) (SEP) Contracts for the third consecutive month. Hometrack Housing Survey (YoY) (SEP) Adjusted Merchandise Trade Balance (Yen) (AUG) Slower pace of global trade could lead the BoJ to expand monetary policy further. Merchandise Trade Balance Total (Yen) (AUG) Merchandise Trade Exports (YoY) (AUG) Merchandise Trade Imports (YoY) (AUG) Corporate Service Price (YoY) (AUG) Industrial Profits (YTD) (YoY) (AUG) Compares with an 11% decline in 2009. Fastest pace of growth since June 2009.
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Mon Sep 27 12:00:00 GMT 2010
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