EUR/USD Fundamental Analysis July 5, 2012, Forecast

Analysis and Recommendations:

The EUR/USD tumbled to 1.2560 as US markets are closed for Independence Day today, so Canadian and Latin American markets will be the only games in town this afternoon. There are no economic data releases due out in Canada or the US, no government bond auctions, and the major political event of the day there should be a meeting between German Chancellor Merkel and Italian PM Monti to discuss the outcome of last week’s European Summit and to plan next steps.

Global markets are trading negatively on light volumes. European equities are lower across the board by as much as 0.8%. Asian equities are mixed, with Japan trading positively and China trading lower. The DXY is slightly higher, with the EURUSD selling off. The commodity currencies lower as well as oil retraces some of yesterday’s gains. German government bond yields are slightly lower while the Spanish and Italian government bond yields are +/-10bps higher than they were yesterday across maturities

Europe released revised services PMI data that were in many ways surprising. Germany’s services PMI slipped from an initial ‘flash’ reading of 50.3 to a reading of 49.9 (50 is the ‘break-even line’ between a PMI index implying growth or contraction). Conversely, the other European countries’ PMIs were revised higher (albeit from bad to less bad). The services PMIs in Italy (43.1 vs. 42.8 in the flash estimate) and France (47.9 in June vs. 47.3 in the flash estimate) were revised higher, while Spain released its services PMI for the first time and it showed an improvement from 41.8 in May to 43.4 in June. The Eurozone composite PMI was revised higher to 46.4 from 46. The UK, meanwhile, released its services PMI for June and it came in weaker at 51.3 compared to 53.3 in May. The bottom line is that services PMIs strengthened in the weaker countries, while weakening in Germany and the UK.

Eurozone retail sales data were released showing a decent month-on-month gain of 0.6% for May. The bad news is that the April data were revised lower to -1.4% m/m from 1%, negating much of the May improvement. The biggest advances were in Spain, France, Austria, Portugal, and the UK, all of which were bouncing back from weak months. Germany, on the other hand, saw retail sales fall by 0.3%.

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

On the 4th of July holiday; there were only a few eco releases, see actual v. forecast below

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