Euro Carves Lower Top Ahead Of EU Summit, Sterling Range In Focus

• Euro: Carves Lower Top, Firewall To Total EUR 700B-940B
• British Pound: 1.6000 Continues To Provide Resistance, Support at 1.5600
• U.S. Dollar: Index Maintains Upward Trend As Fed Softens Dovish Tone

Euro: Carves Lower Top, Firewall To Total EUR 700B-940B

The Euro pared the overnight to 1.3373 as market participants scaled back their appetite for risk and the EURUSD looks poised to track lower over the remainder of the week as European policy makers struggle to restore investor confidence. Italian Prime Minister Mario Monti suggested that the sovereign debt crisis is ‘almost over’ as the governments operating under the single currency increase their efforts to stem the risk for contagion, while an EU official said the overall firewall is likely to total EUR 700B-940B as the group looks to utilize the remaining EUR 240B in the European Financial Stability Facility.

However, European Central Bank board member Jens Weidmann argued that increasing the scope of the rescue fund will not bring about ‘a lasting solution to the crisis,’ and warned that ‘once a central bank becomes involved in fiscal policy, it eventually loses its independence and its credibility as an inflation-fighter.’ As the ECB sticks to its one and only mandate to ensure price stability, it seems as though the central bank is looking to bring its easing cycle to an end, but the Governing Council may have little choice but to ease policy further as the fundamental outlook for the region remains bleak. Indeed, the EURUSD appears to have carved a lower top this week as it fails to push back above 1.3400, and the pair may work its way back towards 1.3000 to test for near-term support. However, the key figure may give out going into April as the EU Summit comes into focus, and the developments coming out of the meeting may weigh on the exchange rate should we see the group struggle to meet on common ground.

British Pound: 1.6000 Continues To Provide Resistance, Support at 1.5600

The British Pound continued to give back the advance from earlier this month following the failed run at 1.6000, and the GBPUSD may come up against 1.5600 as it maintains the range-bound price action carried over from the previous month. However, as the final 4Q GDP report shows a larger-than-expected decline in the growth rate, speculation for additional monetary support may push the GBPUSD lower in April, and the sterling may struggle to maintain the advance from earlier this year as the Bank of England keeps the door open to expand its asset purchase program beyond the GBP 325B target. However, as BoE officials expect to see a more robust recovery later this year, it looks as though the MPC will preserve a wait-and-see approach throughout the first-half of 2012, and the pound-dollar may continue to track sideways in the month ahead as market participants weigh the prospects for future policy.

U.S. Dollar: Index Maintains Upward Trend As Fed Softens Dovish Tone

The greenback continued to gain ground on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)rallying to a high of 9,994, and the reserve currency may appreciate further throughout the North American trade as the shift away from risk-taking behavior gathers pace. As the dollar index maintains the upward trend from earlier this year, the short-term rebound should gather pace over the remainder of the week, and we maintain a bullish outlook for the greenback as the Fed continues to soften its dovish tone for monetary policy. In light of the recent comments by the Fed, it appears as though the FOMC has limited scope to expand its balance sheet further, and we should see the committee look to normalize monetary policy later this year as central bank officials take note of the more robust recovery.

--- Written by David Song, Currency Analyst

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

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FX Upcoming

Currency	GMT	EDT	Release	Expected	Prior
USD	14:30	10:30	DOE U.S. Crude Oil Inventories(MAR 23)	2550K	-1162K
USD	14:30	10:30	DOE U.S. Gasoline Inventories(MAR 23)	-1550K	-1214K
USD	14:30	10:30	DOE U.S. Distillate Inventory(MAR 23)	-500K	1763K
EUR	15:30	11:30	ECB's Vitor Constancio Speaks on Euro Economy

Currency	GMT	Release	Expected	Actual	Comments
EUR	5:30	French GDP (QoQ) (4Q F)	0.2%	0.2%	Expands for second quarter.
EUR	5:30	French GDP (YoY) (4Q F)	1.4%	1.3%
EUR	8:00	Euro-Zone M3 s.a. (3M) (FEB)	2.2%	2.3%	Fastest pace of growth since November.
EUR	8:00	Euro-Zone M3 s.a. (YoY) (FEB)	2.4%	2.8%
GBP	8:30	Gross Domestic Product (QoQ) (4Q F)	-0.2%	-0.3%	Contracts for the second time in 2011.
GBP	8:30	Gross Domestic Product (YoY) (4Q F)	0.7%	0.5%
GBP	8:30	Current Account (Pounds) (4Q)	-8.4B	-8.5B	Smallest deficit since 2Q.
GBP	8:30	Total Business Investment (QoQ) (4Q F)	-5.6%	-3.3%	Declines for the first time since the first quarter.
GBP	8:30	Total Business Investment (YoY) (4Q F)	-1.9%	1.6%
USD	11:00	MBA Mortgage Applications (MAR 23)	--	-2.7%	Weakens for the seventh week.
EUR	12:00	German CPI (MoM) (MAR P)	0.3%	0.3%	Slowest pace of growth since January.
EUR	12:00	German CPI (YoY) (MAR P)	2.2%	2.1%
EUR	12:00	German CPI - EU Harmonised (MoM) (MAR P)	0.4%	0.4%
EUR	12:00	German CPI - EU Harmonised (YoY) (MAR P)	2.3%	2.3%
USD	12:30	Durable Goods Orders (FEB)	3.0%	2.2%	Rises for the third time in the last six months.
USD	12:30	Durables ex Transportation (FEB)	1.7%	1.6%
USD	12:30	Non-Defense Capital Goods Orders ex Aircrafts (FEB)	1.5%	1.2%
USD	12:30	Non-Defense Capital Goods Shipment ex Aircrafts (FEB)	0.9%	1.4%