The Euro pared the previous day's decline to reach a high of 1.3792 on Tuesday, and the single-currency may continue to push higher going into the North American trade as the U.S. dollar weakens against most of its major counterparts.
Talking Points
Japanese Yen: Weighed By Risk Appetite Pound: Service-Based Activity Expands at Faster Pace Euro: Retail Spending Falters U.S. Dollar: ISM Non-Manufacturing on Tap
The Euro pared the previous day's decline to reach a high of 1.3792 on Tuesday, and the single-currency may continue to push higher going into the North American trade as the U.S. dollar weakens against most of its major counterparts. As the EUR/USD continues to hold above 1.3500, the 50.0% Fibonacci retracement fromthe 2009 high to the 2010 low, the euro-dollar may make another run at 1.3890-1.3900, the 61.8% Fib, over the next 24 hours of trade as investors raise their appetite for risk. With market sentiment continuing to dictate price action in the foreign exchange market, the single-currency looks poised to push higher throughout the day as equity futures foreshadow a higher open for the U.S. market.
However, as market participants wait for the European Central Bank interest rate decision scheduled for Thursday, we may see soft resistance around 1.3800, and the exchange rate may hold a narrow range in the days ahead as investors weigh the prospects for monetary policy. Meanwhile, the economic docket showed service-based activity in the Euro-Zone expanded at a slower pace in September, with the PMI reading coming in at 54.1 from an initial forecast of 53.6, while the composite index crossed the wires at 54.1 amid earlier projections for a 53.8 print. Moreover, retail spending in the region unexpectedly slipped 0.4% in August to mark the first decline in four-months, and the central bank is likely to maintain a cautious outlook for the economy as the recover tempers off. If we see the ECB turn increasingly dovish, comments from President Jean-Claude Trichet is likely to weigh on the exchange rate as interest rate expectations falter, and the central bank head may tone down his outlook for the recovery given the ongoing weakness within the private sector.
The British Pound tipped higher for the third-day, with the exchange rate rallying to a high of 1.5913, but we expect the GBP/USD to hold steady ahead of the Bank of England interest rate decision due out later this week. As price action remains confined within the narrow range carried over from the previous week, the pound-dollar should continue to trade above 1.5700, the 38.2% Fibonacci retracement from the 2009 low to high around, in the days ahead unless we see a dramatic shift in risk sentiment. Nevertheless, service-based activity in the U.K. unexpectedly expanded at a faster pace in September, with the PMI increasing to 52.8 from 51.3 in the previous month, and the recent developments could lead the BoE to focus on the risks for inflation as the economic recovery slowly gathers pace. However, if the central bank refrains from releasing a policy statement, the GBP/USD is likely to face muted price action, which should leave the exchange rate range bound until the MPC releases its meeting minutes on October 20.
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