Talking Points

• Euro: Cyprus to Sell EUR 400M of Gold Reserves, Germany Opposes More Aid

• British Pound: U.K. Inflation to Grow 2.8%, BoE Minutes in Focus

• U.S. Dollar: Empire Manufacturing Misses Forecast, TIC Flows, NAHB on Tap

Euro: Cyprus to Sell EUR 400M of Gold Reserves, Germany Opposes More Aid

The Euro is struggling to hold its ground on Monday as Cyprus looks to sell EUR 400M of its ‘excess’ gold reserves to draw up the EUR 7.0B contribution needed to obtain the EUR 10.0B bailout, and the single currency may fail to maintain the narrow range carried over from the previous week as European policy makers maintain a reactionary approach in address the risks sounding the monetary union.

Despite the ongoing turmoil in Cyprus, the German Finance Ministry said ‘there is no additional financial requirement’ for the periphery country, and made an attempt to talk down the threat of a euro-area exit as the governments operating under the single currency struggle to meet on common ground. Although the euro-area is expected to return to growth later this year, the governments operating under the single currency may seek further external support over the coming months as they struggle to get their house in order.

As European finance ministers and central bank governors prepare for the G20 meeting on April 18-19, the group may come under increased pressure to take a more aggressive approach in addressing the risks surrounding the region, and we may see a growing number of European Central Bank officials show a greater willingness to ease monetary policy further as the economic downturn threatens price stability.

As the EURUSD struggle to put in a close above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, the pair appears to be carving a lower top ahead of the next ECB interest rate decision on May 2, and the euro-dollar may continue to give back the rebound from back in November (1.2659) as the fundamental outlook for Europe turns increasingly bleak.

British Pound: U.K. Inflation to Grow 2.8%, BoE Minutes in Focus

The British Pound continued to consolidate, with the GBPUSD tagging a low of 1.5302, but we may see the sterling build a short-term base above the 50.0% Fib from the 2009 low to high (1.5260) as market participants scale back bets for more quantitative easing.

As the economic docket is expected to show the headline reading for U.K. inflation advancing another 2.8% in March, sticky price growth should prop up the Pound over the next 24-hours of trading, and the GBPUSD may track higher ahead of the Bank of England Minutes due out on April 17 as the policy statement is likely to show another 6-3 split with the Monetary Policy Committee.

In turn, the recent weakness in the GBPUSD is likely to be short-lived, and the fundamental developments coming out of the U.K. may help push the pair back towards the 38.2% retracement (1.5680) as the central bank anticipates a slow but sustainable recovery in Britain.

U.S. Dollar: Empire Manufacturing Misses Forecast, TIC Flows, NAHB on Tap

The greenback pared the decline from the previous week, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)advancing to a high of 10,486, and the reserve currency may continue to retrace the decline from earlier this month as the fundamental outlook for the world’s largest economy improves.

Although the Empire Manufacturing index crossed the wires at 3.05 for April amid forecasts for a 7.00 print, Net Long-term TIC flows are expected to show a $40.0B rise in February following the $25.7B expansion the month prior, while the NAHB housing market index is projected to increase to 45 from 44 in March as the economic recovery gradually gathers pace. In turn, a slew of positive developments should increase the appeal of the dollar, and we may see the Fed adopt a neutral to hawkish tone for monetary policy as the U.S. economy gets on a more sustainable path.

FX Upcoming

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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