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Talking Points

• Euro: ECB Adopts Neutral Tone, Banks to Repay EUR 2.93B of LTRO

• British Pound: Carves Higher Low Ahead of BoE Minutes

• U.S. Dollar: All Eyes on NFPs, Jobless Rate

Euro: ECB Adopts Neutral Tone, Banks to Repay EUR 2.93B of LTRO

Although the EURUSD bounced back from an overnight low of 1.3223, the pair has yet to make another run at the 1.3300 handle, and the single currency may struggle to retain the advance from earlier this week should the U.S. Non-Farm Payrolls report dampen speculation for more Fed support.

As the EURUSD clears the May high (1.3241), the recent price development certainly dampens the scope of seeing the head-and-shoulders formation play out, and we may see the pair continue to retrace the decline from earlier this year as the European Central Bank (ECB) adopts a more neutral tone for monetary policy.

Nevertheless, as commercial banks in Europe look to repay another EUR 2.93B of the Long-Term Refinancing Operations (LTRO), the weakening outlook for private sector lending may prompt the ECB to further embark on its easing cycle in the second-half of the year, and the central bank may implement a range of policy tools in the coming months as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

Although we’re scaling back our bearish outlook for the EURUSD, the pair looks poised for a correction as the relative strength index approaches overbought territory, and the single currency remains poised to face additional headwinds over the near to medium-term as the euro-area struggles to emerge from the recession.

British Pound: U.K. Service-Based Activity Gathers Pace

The British Pound pared the advance from earlier this week, with the GBPUSD falling back from the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680, and the sterling may continue to consolidate ahead of the Bank of England (BoE) Minutes due out on June 19 as market participants weigh the outlook for monetary policy.

Indeed, we anticipate another 6-3 split within the Monetary Policy Committee as the BoE refrained from releasing a policy statement yet again, and there may be a growing discussion to move away from the easing cycle as the U.K. averts a triple-dip recession.

Although there’s speculation that the next BoE Governor, Mark Carney, will introduce a growth target for the MPC, a report by the central bank showed inflation expectations for the next 12-months held steady at an annualized 3.6% in May, and the committee may continue to operate under its inflation-targeting framework as price growth is expected to hold above the 2% target over the policy horizon.