DailyFX | March 28 2012 10:15 EDT
The Euro struggled to hold its ground on Wednesday even as European policy makers talked down the risk surrounding the region, and the single currency should continue to give back the advance from earlier this year as it carves out a lower top ahead of April.
Euro: Carves Lower Top, Firewall To Total EUR 700B-940B
The Euro pared the overnight to 1.3373 as market participants scaled back their appetite for risk and the EURUSD looks poised to track lower over the remainder of the week as European policy makers struggle to restore investor confidence. Italian Prime Minister Mario Monti suggested that the sovereign debt crisis is ‘almost over’ as the governments operating under the single currency increase their efforts to stem the risk for contagion, while an EU official said the overall firewall is likely to total EUR 700B-940B as the group looks to utilize the remaining EUR 240B in the European Financial Stability Facility.
However, European Central Bank board member Jens Weidmann argued that increasing the scope of the rescue fund will not bring about ‘a lasting solution to the crisis,’ and warned that ‘once a central bank becomes involved in fiscal policy, it eventually loses its independence and its credibility as an inflation-fighter.’ As the ECB sticks to its one and only mandate to ensure price stability, it seems as though the central bank is looking to bring its easing cycle to an end, but the Governing Council may have little choice but to ease policy further as the fundamental outlook for the region remains bleak. Indeed, the EURUSD appears to have carved a lower top this week as it fails to push back above 1.3400, and the pair may work its way back towards 1.3000 to test for near-term support. However, the key figure may give out going into April as the EU Summit comes into focus, and the developments coming out of the meeting may weigh on the exchange rate should we see the group struggle to meet on common ground.
British Pound: 1.6000 Continues To Provide Resistance, Support at 1.5600
The British Pound continued to give back the advance from earlier this month following the failed run at 1.6000, and the GBPUSD may come up against 1.5600 as it maintains the range-bound price action carried over from the previous month. However, as the final 4Q GDP report shows a larger-than-expected decline in the growth rate, speculation for additional monetary support may push the GBPUSD lower in April, and the sterling may struggle to maintain the advance from earlier this year as the Bank of England keeps the door open to expand its asset purchase program beyond the GBP 325B target. However, as BoE officials expect to see a more robust recovery later this year, it looks as though the MPC will preserve a wait-and-see approach throughout the first-half of 2012, and the pound-dollar may continue to track sideways in the month ahead as market participants weigh the prospects for future policy.
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