DY: Euro Holds Tight Range, British Pound Remains Little Changed
The Euro pared Monday’s decline and rose to a high of 1.4440 on the back of U.S. dollar weakness, and the single-currency is likely to hold the narrow range carried over the previous week as investors remain off-line ahead of New Years Day.
Talking Points
• Japanese Yen: Continues to Lose Ground
• Pound: U.K. Housing Equity Withdrawals Weaken at Slower Pace
• Euro: ECB Continues to See Turmoil in Banking Sector
• US Dollar: S&P/Case-Shiller, Consumer Confidence on Tap
Euro Holds Tight Range, British Pound Remains Little Changed
The Euro pared Monday’s decline and rose to a high of 1.4440 on the back of U.S. dollar weakness, and the single-currency is likely to hold the narrow range carried over the previous week as investors remain off-line ahead of New Years Day. However, as risk trends continue to dictate price action across the foreign exchange market, the rebound in risk appetite could drive the EUR/USD higher going into the North American trade as equity futures foreshadow a higher open for the U.S. market.
Meanwhile, European Central Bank board member Marko Kranjec said “some signs are showing the economic crisis is over” during an interview with TV Slovenija, but continued to see a risk for a double-dip recession as the global financial system remains fragile. Mr. Kranjec noted that “banks will have trouble getting funding and trouble with past investments,” and went onto say that “2010 will be a difficult year, though the economy will be growing” as policy makers anticipate to see a moderate recovery. In addition, ECB council member Yves Mersch said that the financial crisis has greatly affected the banking sector in Luxembourg during the year-end report, and reiterated that it is an “essential obligation” for governments within the euro-region to respect the budge-deficit rules for the nations operating under the single-currency.
The British Pound rose to a fresh weekly high of 1.6070 during the overnight trade, but failed to hold ground and slipped back below the 200-Day SMA (1.6050) to remain little changed on the day. As a result, we are likely to see the GBP/USD maintain a tight range throughout the week as market liquidity thins out ahead of 2010, but the rise in risk appetite could drive the exchange rate higher as the greenback remains the top funding-currency next to the Japanese Yen. Meanwhile, a report by the Bank of England showed housing equity withdrawals in the U.K. weakened GBP 4.9B in the third quarter after tumbling GBP 6.9B during the three-months through June, and households may continue to curb their willingness to carry debt as they face a weakening labor market paired with tightening credit standards.
The U.S. dollar continued to lose ground against most of its major counterparts as market participants raised their appetite for higher-yielding investments, while the USD/JPY tipped higher for the second day to reach a high of 91.79. Nevertheless, the S&P/Case-Shiller U.S. home price index is forecasted to rise to 147.00 in October from 146.51 in the previous month, which would be the highest reading since December 2008, and conditions are likely to improve over the following year as the expansion in monetary and fiscal policy continues to feed through the real economy. Moreover, consumer confidence is anticipated to improve for the second consecutive month in December, with economists projecting the Conference Board’s index to rise to 53.0 from 49.5 in the previous month, and the data is likely to encourage an enhanced outlook for future growth as private spending accounts for more than two-thirds of the economy.
