EUR/USD Fundamental Analysis July 23, 2012, Forecast

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Analysis and Recommendations:

The EUR/USD  is trading at 1.2198 as eurozone weakness continues. The absence of data and a desire to pare risk ahead of the weekend is driving widespread USD strength as we approach the NA session.  JPY is flat and outperforming on the crosses, while CAD, AUD & GBP are underperforming slightly.  EUR is weak against all of the majors and declining as markets continue to focus on developments in Spain. 

There are no US data releases today, and headline risk is likely to be minimal in the absence of official meetings. Global equities aren’t in such a jovial mood today, and the catalysts behind this mood swing are fairly thin but rooted in intensifying concerns about funding pressures affecting stressed European sovereign credits and China’s persistent bias in favor of tight property lending conditions.  Currency markets are reinforcing the negative mood with almost all of the major crosses pushing lower against the USD except for the yen. 

The commodities complex is also correcting lower with oil and gold off and mixed performances being put in across the metals and agricultural commodities.  Spain’s funding costs are getting crushed this morning with the 10 year note back up above 7% at the time of writing.  My bias is that the US earnings season offers short-term relief to the risk trade, but the backdrop remains very unkind amidst the very real prospect of further debt restructurings/reprofilings out of Europe including Spain.  Italy’s funding costs are also under more intense pressure this morning with its 10 year note rising above 6% again.  Yields in both countries are not sustainable as the interest cost across the full term structure of rates rises at a faster pace than tax revenues driven by poor nominal GDP growth.  US 10s are gently rallying.

The US economy has once again stalled out in 2012H2, and that will become more evident with next Friday’s Q2 GDP print that will be the key global release of the week.  Scotia Economics figures the US grew at a paltry 1.6% q/q annualized rate which is largely a consensus (1.5%) view.  The very high end of the current consensus points to 1.9% growth, while the low end sits at 0.8%.  Don’t get too caught up in the albeit important risks emanating from Europe and Asia, as the Fed’s dual mandate is principally focused upon the very large domestic economy which is sharply disappointing to the downside this year.  Q1 growth of 1.9% was largely an autos story, which if taken out of the picture, left behind an economy growing at less than 1% in Q1 which may well be repeated in Q2 and thus reflecting a stalled out economy.  The politics to it all is often grossly misunderstood by way of forgetting that it is Congress that mandated – rightly or wrongly – the Fed to adhere to a dual mandate and to respond with policy action should growth and/or inflation disappoint to the downside as is very much the case.  Unless Congress wishes to alter that mandate, then politics motivates a steady easing bias at the Fed.

Next week might be a make it or break it week.

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 July 20, 2012 actual v. forecast

Date

Time

 

Currency

 

 

 

Event

Actual

 

Forecast

 

Previous

 

 

Jul. 20

02:30

 

AUD

 

 

 

Import Price Index (QoQ) 

2.4%

 

1.5% 

 

-1.2% 

 

 

 

04:00

 

NZD

 

 

 

Credit Card Spending (YoY) 

4.6%

 

 

 

3.9% 

 

 

 

06:00

 

EUR

 

 

 

Estonian PPI (MoM) 

0.00%

 

 

 

0.00% 

 

 

 

07:00

 

EUR

 

 

 

German PPI (MoM) 

-0.4%

 

-0.2% 

 

-0.3% 

 

 

 

07:00

 

EUR

 

 

 

German PPI (YoY) 

1.6%

 

1.8% 

 

2.1% 

 

 

 

08:00

 

DKK

 

 

 

Danish Retail Sales (YoY) 

-1.2%

 

 

 

-0.5% 

   

 

08:30

 

EUR

 

 

 

Dutch Consumer Spending 

-1.90

 

 

 

-2.10 

   

 

09:30

 

GBP

 

 

 

Public Sector Net Borrowing 

12.1B

 

11.0B 

 

16.1B 

   

 

13:30

 

CAD

 

 

 

Core CPI (MoM) 

-0.4%

 

-0.1% 

 

0.2% 

 

 

 

13:30

 

CAD

 

 

 

CPI (MoM) 

-0.4%

 

-0.1% 

 

-0.1% 

 

 

 

13:30

 

CAD

 

 

 

CPI (YoY) 

1.5%

 

2.0% 

 

1.2% 

 

 

 

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

Date

Time

Currency

 Event

Previous

Jul 24

7:00

EUR

French Flash Manufacturing PMI

45.2

7:00

EUR

French Flash Services PMI

47.9

7:30

EUR

German Flash Manufacturing PMI

45.0

7:30

EUR

German Flash Services PMI

49.9

8:00

EUR

Flash Manufacturing PMI

45.1

8:30

GBP

BBA Mortgage Approvals

30.2K

9:00

EUR

Flash Services PMI

47.1

13:00

USD

Flash Manufacturing PMI

52.5

Jul 25

8:00

EUR

German Ifo Business Climate

105.3

 

8:30

GBP

Prelim GDP q/q

-0.3%

10:00

GBP

CBI Industrial Order Expectations

-11

13:00

EUR

Belgium NBB Business Climate

-13.2

14:00

USD

New Home Sales

369K

14:30

USD

Crude Oil Inventories

 

Jul 26

6:00

EUR

GfK German Consumer Climate

5.8

8:00

EUR

M3 Money Supply y/y

2.9%

12:30

USD

Core Durable Goods Orders m/m

0.7%

12:30

USD

Unemployment Claims

 

14:00

USD

Pending Home Sales m/m

5.9%

Jul 27

27th-31st

GBP

Nationwide HPI m/m

-0.6%

All Day

EUR

German Prelim CPI m/m

-0.1%

7:00

CHF

KOF Economic Barometer

1.16

12:30

USD

Advance GDP q/q

1.9%

13:55

USD

Revised UoM Consumer Sentiment

72.0

 

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About: FX Empire Analyst - Barry Norman

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