Forex: Euro At Risk Ahead Of EU Summit, Sterling To Consolidate

By David Song, Currency Analyst

Talking Points

• Euro: German, France Push For ‘New Treaty - Italy To Vote On EUR 30B Relief Package
• British Pound: U.K. Services Pick Up, BoE to Maintain Current Policy
• U.S. Dollar: Weakens Across The Board, ISM Non-Manufacturing On Tap

Euro: German, France Push For‘New Treaty - Italy To Vote On EUR 30B ReliefPackage The Euro advanced to 1.3485 as German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a ‘new treaty,’ while Italian Prime Minister Mario Monti unveiled a EUR 30B package to boost growth while cutting the budget deficit. As Italy’s government is scheduled to vote on the new measures later today, a positive outcome should help the EUR/USD to retrace the selloff from Friday, but the relief rally may be short-lived as the European Central Bank maintains a cautious outlook for the region. Indeed, the ECB is widely expected to lower the benchmark interest rate by another 25bp a head of the EU Summit, and we may see the central bank continue to move away from its nonstandard measure as its asset purchase program comes under increased scrutiny. In turn, policy makers in Europe may show an increased willingness to channel funds through the International Monetary Fund, financed by the central banks operating under the monetary union, but we may see investor confidence deteriorate further should the EU struggle to meet on common ground at the Summit scheduled for later this week. As the EUR/USD struggles to hold above the 20-Day SMA at 1.3482, we should see the downward trending channel continue to pan out in the days ahead, and the exchange rate may make another run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 should optimism surrounding the EU Summit deteriorate in the days ahead.British Pound: U.K.Services Pick Up, BoE to Maintain Current Policy The British Pound advanced to 1.5686 following the rise in market sentiment, and the sterling may continue to retrace the sharp decline from the previous month as the fundamental outlook for Britain improves. As service-based activity in the U.K. expands at a faster pace, the Bank of England may soften its dovish outlook for the region, and the central bank may preserve its wait-and-see approach in the beginning of the following year as policy makers expect to see a modest recovery in 2012. In turn, market participants may show a muted reaction to the BoE rate decision on tap for later this week, and we may see the GBP/USD consolidate over the near-term as market participants wait for the meeting minutes, which are due out on December 21. As market participants increase their appetite for risk, we may see the GBP/USD climb back above the 38.2% Fib from the 2009 low to high around 1.5680-1.5700, but the rebound could be short-lived should we see the 20-Day SMA (1.5725) hold up as resistance. U.S. Dollar: Weakens Across The Board, ISM Non-Manufacturing On TapThe greenback weakenedagainst all of its major counterparts on Monday, with the DowJones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of9,854, and the rise in risk sentiment may gather pace during theNorth American trade as equity futures foreshadow a higher open forthe U.S. market. At the same time, we’re expectingservice-based activity in the world’s largest economy toexpand at a faster pace in November, and a rise in the ISMNon-Manufacturing index may dampen the appeal of the USD as marketparticipants continue to treat the reserve currency as a safehaven. As risk sentiment picks up ahead of the EU Summit, thegreenback may struggled to hold its ground over the coming days,but hopes surrounding the meeting could be short-lived shouldEuropean policy makers fail to meet eye-to-eye.--- Written by David Song, CurrencyAnalystTo contact David, e-mail dsong@dailyfx.com. Follow meon Twitter at @DavidJSongTo be added to David's e-mail distributionlist, send an e-mail with subject line "Distribution List"to dsong@dailyfx.com.Willthe EUR/USD Retrace The Advance From Earlier This Year? Joinus in the ForumRelatedArticles: Weekly Currency Trading Forecast F X Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:00	10:00	ISM Non-Manufacutring Composite (NOV)	53.5	52.9
USD	14:00	10:00	Factory Orders (OCT)	-0.3%	0.3%

Currency	GMT	Release	Expected	Actual	Comments
NZD	20:45	Value of All Buildings s.a. (3Q)	--	-2.3%	Falls for three straight quarters.
AUD	21:30	AiG Performance of Service Index (NOV)	--	47.7	Contracts for the eighth time this year.
AUD	22:30	TD Securities Inflation (MoM) (NOV)	--	-0.1%	Weakens for the second time in 2011.
AUD	22:30	TD Securities Inflation (YoY) (NOV)	--	2.1%
JPY	22:50	Loans & Discounts Corp (YoY) (OCT)	--	-0.8%	Declines for 24 straight months.
AUD	23:30	Company Operating Profit (QoQ) (3Q)	3.0%	4.8%	Increases for the second quarter.
AUD	23:30	Inventories (3Q)	1.2%	-1.1%	Falls for the first time since 3Q 2010.
AUD	23:30	ANZ Job Advertisements (MoM) (NOV)	--	0.0%	Fails to grow for the seventh time this year.
CNY	1:30	HSBC PMI Services (NOV)	--	52.5	Slowest pace of growth since August.
EUR	7:45	Italian PMI Services (NOV)	44.1	45.8	Contracts for the third consecutive month.
EUR	7:50	French PMI Services (NOV F)	49.3	49.6
EUR	7:55	German PMI Services (NOV F)	51.4	50.3
EUR	8:00	Euro-Zone PMI Services (NOV F)	47.8	47.5
EUR	8:00	Euro-Zone PMI Composite (NOV F)	47.2	47.0
EUR	8:30	Euro-Zone Sentix Investor Confidence (DEC)	-21.0	-24.0	Lowest reading since July 2009.
GBP	8:30	Purchasing Manager Index Services (NOV)	50.5	52.1	Fastest pace of growth since September.
GBP	8:30	Official Reserves (Changes) (NOV)	--	-$249M	Declines for the fifth time this year.
EUR	9:00	Euro-Zone Retail Sales (MoM) (OCT)	0.1%	0.4%	Increases for the seventh time in 2011.
EUR	9:00	Euro-Zone Retail Sales (YoY) (OCT)	-0.8%	-0.4%

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