EUR/USD Fundamental Analysis July 10, 2012, Forecast

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Analysis and Recommendations:

The EUR/USD has gained a few pips ahead of the Eurogroup meetings today trading at 1.2306. The meeting today is to focus on the EU summit and how to make progress from here have done little to soothe markets as EUR sinks lower and Italian and Spanish yields jump higher. Germany auctioned six month bills at a record low yield of -0.03%. The market fears have shifted to falling global growth, as PMIs have been weak across the board. Most of the major economies now have PMIs below 50, including Brazil, Germany, France, Italy, Spain, South Korea, Japan and the UK, with the US and China still above 50 but falling. Slowing growth typically is met with fiscal and monetary stimulus; however both are difficult and complicated to implement considering the fragile position of sovereign balance sheets and emergency level policy rates already in place; leaving markets somewhat uncertain as to the path ahead. From here it is likely Fed policy that matters most. Over the weekend two Fed member spoke, Evans and Rosengren, who suggested that they would likely support further QE. The main event today is the meeting of European finance ministers in Brussels to follow up on the decisions reached at last month’s EU Summit.

The summit statement explicitly set July 9 as the date by which its main initiatives were to be implemented. Those initiatives are:

a) “The rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalization of its banking sector.”

b) The use of the EFSF/ESM instruments “in a flexible and efficient manner in order to stabilize markets” for countries meeting their EU deficit standards (Italy).

c) Progress towards a single bank supervisory mechanism. This does not mean that Spain’s banking system will be recapitalized later today or tomorrow, but rather that the memorandum setting out the terms and procedures for recapitalization in the future could be released today or tomorrow.

Even at that, an memorandum of understanding between Spain and the Eurogroup may not be definitive: it may be one in a series of MoU’s as the independent audit and valuation of Spain’s financial system is not due to be complete until September and therefore the final terms and size of the bailout needs cannot yet conclusively be determined. Similarly, the Eurogroup could flesh out what a “flexible and efficient” use of the EFSF/ESM means, or it could keep its powder dry and release another statement ambiguously implying that it is willing to use the EFSF/ESM under the right circumstances.

In short, while the Eurogroup is supposed to implement these measures today and tomorrow, exactly what ‘implementation’ implies is loose and uncertain.

In this context, ECB President Draghi will address the European Parliament’s economic and monetary committee today. This is scheduled quarterly testimony and is likely to include further color on his rationale for the recent ECB rate cuts and as well his remarks could well touch on wider policy issues related to the EU sovereign debt crisis. The testimony is another source of headline risk.

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

Economic Data for July 9, 2012 actual v. forecast

Date

Time

 

Currency

 

 

 

Event

Actual

 

Forecast

 

Previous

 

 

Jul. 09

00:50

 

JPY

 

 

 

Adjusted Current Account 

0.28T

 

0.42T 

 

0.29T 

 

 

 

02:30

 

CNY

 

 

 

Chinese CPI (YoY) 

2.2%

 

2.3% 

 

3.0% 

 

 

 

02:30

 

CNY

 

 

 

Chinese PPI (YoY) 

-2.1%

 

-1.9% 

 

-1.4% 

 

 

 

02:30

 

CNY

 

 

 

Chinese CPI (MoM) 

-0.6%

 

-0.3% 

 

-0.3% 

 

 

 

06:45

 

CHF

 

 

 

Unemployment Rate 

2.9%

 

3.2% 

 

2.9% 

   

 

13:30

 

EUR

 

 

 

ECB President Draghi Speaks 

 

 

 

 

 

   

 

Upcoming Economic Events that affect the CHF, EUR, GBP and USD

Date

Time

Currency

 Event

Previous

Jul 10

6:45

EUR

French Industrial Production m/m

1.5%

8:30

GBP

Manufacturing Production m/m

-0.7%

8:30

GBP

Trade Balance

-10.1B

14:00

GBP

NIESR GDP Estimate

0.1%

Jul 11

12:30

USD

Trade Balance

-50.1B

14:30

USD

Crude Oil Inventories

-4.3M

Jul 12

9:00

EUR

Industrial Production m/m

-0.8%

12:30

USD

Unemployment Claims

 

12:30

USD

Import Prices m/m

-1.0%

18:00

USD

Federal Budget Balance

-124.6B

7:15

CHF

PPI m/m

-0.2%

Jul 13

12:30

USD

PPI m/m

-1.0%

13:55

USD

Prelim UoM Consumer Sentiment

73.2

 

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About: FX Empire Analyst - Barry Norman

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