• Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial
• British Pound: Correction In Focus, BoE To Discuss Exit Strategy

Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial

The Euro tumbled to a fresh monthly low of 1.2954 as French President Francois Hollande overtook Nicolas Sarkozy as the president of France, while the two main parties in Greece failed to obtain a joint majority, and the political uncertainties surrounding the region casts a bearish outlook for the EURUSD as it struggles to hold above interim support (1.3000). As President Hollande challenges the budget-cutting measures and looks toward fiscal stimulus to strengthen the economy, the shift in leadership certainly undermines the efforts to address the sovereign debt crisis, and it seems as though Greece may ultimately leave the monetary union as government officials shun austerity.

As the fiscal situation in Europe turn increasingly bleak, we should see the European Central Bank take additional steps to shore up the ailing economy, and the Governing Council may face increased pressure to push the benchmark interest rate below 1.00% in order to dampen the risk for a prolonged recession. As the bearish formation in the EURUSD continues to take shape, we are waiting to see a close below 1.3000 to favor further declines in the exchange rate, and we will preserve our bearish outlook for the pair as price action continues to approach the apex of the descending triangle. In turn, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50, and the single currency is likely to face additional headwinds this year as European policy makers struggle to meet on common ground.

British Pound: Correction In Focus, BoE To Discuss Exit Strategy

The British Pound regained its footing on Monday, with the GBPUSD bouncing back from an overnight low of 1.6113, and the sterling may track higher throughout the week as the Bank of England moves away from its easing cycle. Indeed, the BoE is widely expected to maintain its current policy stance in May, but we may see a growing rift within the Monetary Policy Committee as central bank officials take note of the stickiness in underlying inflation. As the MPC drops its dovish tone for monetary policy, we should see the committee start to discuss a tentative exit strategy going into the second-half of the year, and Governor Mervyn King may sound a bit more hawkish this time around as policy makers expect to see a stronger recovery later this year. As the short-term correction in the GBPUSD continues to pan out, we are still looking at the 1.6000 figure (former resistance) for near-term support, and the pair looks poised to mark fresh 2012 highs in the coming days as it maintains the upward trend from earlier this year.

--- Written by David Song, Currency Analyst for DailyFX