EUR/USD Forecast Dec. 08, 2011, Fundamental Analysis

The EUR/USD continues to trade with heavy volatility and fluctuations as the mixed signals over what the EU leaders will result to affect the pair ahead of the ECB decision.

Investors are mixed over what to expect from the EU summit and that is reflecting on the euro. The gains were seen on a report from the FT citing that the EU is considering combining the EFSF with the ESM that is due to come into effect mid-2012 and also rely on the IMF for further support and probably even the ECB. This supported the hopes for a breakthrough this summit and helped the rebound which barely lasted after Germany denied the report and said that talks are in private bringing the euro lower again.

This mixed sentiment and high uncertainty is surely affecting the market, especially as a failure again to meet high market expectations will spread the debt crisis faster across the region especially after we started to see some signs of progress and a slight ease in surging yields, nevertheless, they remain high.

The countdown nonetheless is coming to an end and the EU leaders will start with the first meeting Thursday as they lightly start the hard task set for Friday as eyes turn to the ECB and the awaited decisions from the central bank. The ECB is expected to cut rates for the second time in as many months to support faltering growth as the eurozone is already judged to have entered its mild recession with fourth quarter data very weak and expectations also signal for more liquidity operations to be announced by the bank with longer term tenders to address the market tension and insure the financial system’s stability.

The European Central Bank announce the Interest Rates Decision at 12:45 GMT with expectation the Governing Council will lower the key rate to 1.00% from 1.25% and eyes will surely turn to Draghi’s press conference at 13:30 GMT for more details from the bank.

The United States will join the session at 13:30 GMT with the Initial Jobless Claims (DEC 2), noting that the previous figure was 402 thousand claims.

At 15:00 GMT the United States will provide markets with the Wholesale Inventories for October, which could have expanded by 0.4% from the prior drop of 0.1%.

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