Forex: U.S. Dollar Regains Footing, Euro To Face Range-Bound Price Action

The U.S. dollar recouped some of the losses from the overnight trade, but the drop in market participation may keep the major exchange rates within a narrow range, leaving little in the way of see any major price developments on Monday.

Talking Points

• U.S. Dollar: Recoups Losses On Holiday Trade
• Euro: Range-Bound Price Action Ahead
• British Pound: BBC Dampens Outlook For BoE Rate Hike

The EUR/USD fell back from a high of 1.4328 to maintain the tight range from earlier this month, and the pair may continue to trend sideways heading into June as fears surrounding the sovereign debt crisis bears down on trader sentiment. As policy makers in Greece struggle to meet on common ground, the region will certainly have to step up its efforts to get the next installment of its EUR 110 bailout package, and the euro remains at risk of facing additional headwinds over the coming months as the European Central Bank is widely expected to keep the benchmark interest rate at 125% in June.

According to Credit Suisse overnight index swaps, investors continue to price a zero percent chance for a 25bp rate hike in June, and ECB President Jean-Claude Trichet may continue to soften his hawkish tone for monetary policy as European policy makers struggle to contain the risk for contagion. As the near-term rally in the EUR/USD fails to produce a test of the 50-Day moving average at 1.4328, the pair may continue to consolidate over the next 24-hours of trading, but the event risks scheduled for Tuesday should spark a considerable reaction in the exchange rate as currency traders weigh the outlook for future growth. An ongoing expansion in Germany's labor market should produce a bullish reaction in the single-currency, but a soft Euro-Zone CPI estimate is likely to weigh on the EUR/USD as market participants scale back speculation for higher borrowing costs in Europe. In turn, we may see the euro-dollar continue to face range-bound price action this week, and there is certainly some room to the downside should price action continue to hold below the 50-Day SMA.

The British Pound halted the near-term advance against its U.S. counterpart and the sterling may continue to lose ground over the next 24-hours of trading as the British Chambers of Commerce pushes back its forecasts for a rate hike by the Bank of England. The BCC expects to see a 25bp rate hike in August after calling for higher interest rates in May, with the group lowering its growth forecast to 1.3% for 2011 amid earlier projections for a 1.4% expansion in the growth rate. As the outlook for growth falters, the BoE is expected to carry its wait-and-see approach into the second-half of the year, and the sterling may struggle to hold its ground in the following month as interest rate expectations deteriorate.

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Related Articles: Weekly Currency Trading Forecast

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
CAD	12:30	8:30	Gross Domestic Product (Annualized) (1Q)	4.0%	3.3%
CAD	12:30	8:30	Gross Domestic Product (MoM) (MAR)	0.2%	-0.2%
CAD	12:30	8:30	Gross Domestic Product (YoY) (MAR)	2.6%	2.9%
CAD	12:30	8:30	Current Account (BOP) (1Q)	-$7.2B	-$11.0B

Currency	GMT	Release	Expected	Actual	Comments
NZD	22:45	Trade Balance (APR)	600M	1113M	Largest surplus since comparable records began in 1951.
NZD	22:45	Trade Balance (YTD) (APR)	571M	1187M
NZD	22:45	Exports (APR)	4300M	4651M
NZD	22:45	Imports (APR)	3700M	3538M
GBP	23:01	Hometrack Housing Survey (MoM) (MAY)	--	-0.1%	Contracts for the fourth time this year.
GBP	23:01	Hometrack Housing Survey (YoY) (MAY)	--	-3.7%
AUD	1:00	HIA New Home Sales (MoM) (APR)	--	0.2%	Rises for three straight months.
AUD	1:30	Company Operating Profit (QoQ) (1Q)	2.0%	-2.0%	Falls for three consecutive quarters.
AUD	1:30	Inventories (1Q)	0.1%	0.4%
JPY	5:05	Small Business Confidence (MAY)	--	37.8	Rises for the second time this year.