EUR/USD Weekly Fundamental Analysis May 28 – June 1, 2012, Forecast

Introduction: Out of the major currency pairs the most popular and easy to trade currency pair is the EUR/USD. It has become so popular with traders these days that even when there is no visible trade to be had it is yet traded as a matter of habit. This is of course something that should be avoided and any investor who trades this currency pair wisely can do so successfully with sizable profits at the end of the day.

The first thing with trading currencies is to realize that the EUR/USD is made up of two separate currencies although considered to be one unit when taken as a pair. The weaknesses and strengths of each currency have to be taken into consideration when trading the unit as it influences the final outcome. Another factor that is often overlooked by traders or investors is that the weakening of one currency along with the strengthening of the other currency in the pair results in the generation of pips. It is according to this that entry and exit from the Forex market has to be done in order to maintain profitability.

  • The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
  • Dollar strength drives EUR/USD lower
  • FED intervention to weaken the dollar the sends EUR/USD higher

 

Weekly Analysis and Recommendation:

The EUR/USD closed out the week at 1.2516 bouncing up after it broke through below the 1.25 number.

Highest: 1.2824

Lowest: 1.2497

Difference: 0.0327

Average: 1.2617

Change %: -2.32

Entering the US long weekend, the market is vulnerable to position squaring, particularly as there is hope for a European solution and the European Redemption Fund comes back into the headlines. As the global growth outlook softens and the European crisis escalates, it becomes increasingly clear that the need for more than a band aid solution is rising and threatening global financial market stability.  In this environment, equities are quiet, with US futures pointing to a positive open, bond yields are mixed (lower in the US, France and Portugal, but higher in Germany and Spain). The USD is weaker, but for most currencies it is simply retracing some of the recent strength as since last Friday, the USD is still materially stronger.

With negative European developments still dominating markets, we have a strong USD bid remaining well in play, though the VIX index and EURUSD basis swaps remain off last week’s highs and lows respectively. Our USD/Asia ex‐Japan FX index surged back higher yesterday, after two days of stabilization, and is now nearly at a new 1‐year high.

The negative grind in markets, and in Asian currencies, is likely to continue until we either see assurances that the Europeans can secure Greece’s continued membership in the Eurozone (clarity on this front is unlikely until after the next Greek election in June), or a financial sector support scheme can be assured that would ring‐fence with certainty the rest of the Eurozone (financial sector) in the case of a Greek exit.   

Europe is currently debating whether eurobonds or an alternative European Redemption Fund proposal could offer a solution to its sovereign debt and banking crisis.  Italian PM Mario Monti recently stated that the majority across the EU support joint Eurobond issues and that Germany’s opposition could be overcome.  That seemed a stretch since it conflicted with the impressions of Luxembourg’s Prime Minister Jean-Claude Juncker, and both German Chancellor Angela Merkel and the German political opposition remain united against the Eurobond concept in no small part because the resulting yield convergence would come at the expense of Germany’s borrowing costs and with few if any strings attached beyond the European Fiscal Stability Treaty. 

The notion of a European Redemption Fund contained within a European Redemption Pact that was first proposed last November, however, is being studied as one of the more novel proposals and will be debated by the German Parliament on June 13th. 

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports

Major Economic Events for the week of May 21-25 actual v. forecast for Euro, GPB, and the Franc

Currency

 

Actual

Forecast

Previous

GBP

CPI y/y

3.0%

3.1%

3.5%

GBP

Public Sector Net Borrowing

-18.8B

-8.5B

14.6B

GBP

MPC Meeting Minutes

0-0-9

0-0-9

0-0-9

GBP

Retail Sales m/m

-2.3%

-0.8%

2.0%

EUR

German Flash Manufacturing PMI

45.0

47.1

46.2

EUR

German Ifo Business Climate

106.9

109.4

109.9

GBP

Revised GDP q/q

-0.3%

-0.2%

-0.2%

 Historical:

Highest: 1.5091 USD on 03 Dec 2009.

Average: 1.3709 USD over this period.

Lowest: 1.19 USD on 07 Jun 2010.

 

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Date

Time

Currency

 

Previous

May 28

28th-31st

GBP

Nationwide HPI m/m

-0.2%

May 29

All Day

EUR

German Prelim CPI m/m

0.2%

14:00

USD

CB Consumer Confidence

69.2

May 30

7:00

CHF

KOF Economic Barometer

0.40

8:00

EUR

M3 Money Supply y/y

3.2%

8:30

GBP

Net Lending to Individuals m/m

1.4B

14:00

USD

Pending Home Sales m/m

4.1%

23:01

GBP

GfK Consumer Confidence

-31

May 31

5:45

CHF

GDP q/q

0.1%

31st-3rd

EUR

German Retail Sales m/m

0.8%

6:45

EUR

French Consumer Spending

-2.9%

7:55

EUR

German Unemployment

19K

9:00

EUR

CPI Flash Estímate y/y

2.6%

12:15

USD

ADP Non-Farm Employment

119K

12:30

USD

Prelim GDP q/q

2.2%

12:30

USD

Unemployment Claims

370K

13:45

USD

Chicago PMI

56.2

Jun 1

TBD

GBP

Halifax HPI m/m

 

7:15

CHF

Retail Sales y/y

4.2%

7:30

CHF

SVME PMI

46.9

7:45

EUR

Italian Manufacturing PMI

43.8

8:30

GBP

Manufacturing PMI

50.5

9:00

EUR

Unemployment Rate

10.9%

12:30

USD

Non-Farm Employment Change

115K

12:30

USD

Unemployment Rate

8.1%

12:30

USD

Core PCE Price Index m/m

0.0%

12:30

USD

Personal Spending m/m

0.2%

12:30

USD

ISM Manufacturing PMI

0.3%

14:00

USD

S&P/CS Composite-20 HPI y/y

54.8

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