EUR/USD Fundamental Analysis July 6, 2012, Forecast

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Analysis and Recommendations:

The EUR/USD is trading at 1.2382 after falling 0.0146

The ECB cut its main policy rate from 1.0% to 0.75% and the deposit rate from 0.25% to 0.0%, essentially putting a zero bound floor on EONIA. The euro tumbled on the pessimistic remarks in the statement from the ECB Director. Economic data has deteriorated since the last press conference (June 6th) leaving open the possibility that the ECB announces other policy tools, which could include changes to collateral rules or a decision to follow in the BoE’s footsteps with a new funding for lending program. These would likely prove EUR positive as they do not carry the same burden as a QE program would, but they provide some economic benefit.

In other European news, German factory orders were reasonable, increasing 0.6% m/m; while Ireland, for the first time since receiving aid, auctioned €500m in 98-day t-bills, with a yield of 1.8%. Spain also raised capital, auctioning €3bn at 5.086%, below the 5.457% at the June 21st auction. Media attention appears focused on building ties between Germany and Italy; however the most important theme from here is the balancing of European growth with austerity.

The relationship between risk appetite and euro has broken down, providing a healthy and encouraging signal for markets. For several months euro trading and risk appetite were closely correlated; as fears grew over Europe, risk aversion spiked and the USD rallied (the impact of safe haven flows); however over the last few weeks, this relationship has broken down  suggesting that developments in Europe are no longer driving the entire market.

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 5, 2012 actual v. forecast

Date

 

Currency

 

 

 

Event

Actual

 

Forecast

 

Previous

 

 

Jul. 05

 

AUD

 

 

 

Trade Balance 

-0.28B

 

-0.50B 

 

-0.03B 

   

 

 

GBP

 

 

 

Halifax House Price Index (MoM) 

1.0%

 

-0.2% 

 

0.4% 

   

 

 

EUR

 

 

 

Spanish 10-Year Obligacion Auction 

6.430%

 

 

 

6.044% 

 

 

 

 

EUR

 

 

 

German Factory Orders (MoM) 

0.6%

 

0.2% 

 

-1.4% 

   

 

 

GBP

 

 

 

Interest Rate Decision 

0.50%

 

0.50% 

 

0.50% 

 

 

 

 

GBP

 

 

 

BOE QE Total 

375B

 

375B 

 

325B 

 

 

 

 

EUR

 

 

 

Interest Rate Decision 

0.75%

 

0.75% 

 

1.00% 

 

 

 

 

USD

 

 

 

ADP Nonfarm Employment Change 

176K

 

105K 

 

136K 

   

 

 

USD

 

 

 

Initial Jobless Claims 

374K

 

385K 

 

388K 

   

 

 

EUR

 

 

 

ECB Press Conference 

 

 

 

 

 

 

 

 

 

USD

 

 

 

Continuing Jobless Claims 

3306K

 

3300K 

 

3302K 

   

 

 

USD

 

 

 

ISM Non-Manufacturing Index 

52.1

 

53.0 

 

53.7 

   

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

Date

Time

Currency

 Event

Forecast

Previous

Jul 6

7:00

CHF

Foreign Currency Reserves

 

303.8B

7:15

CHF

CPI m/m

-0.3%

0.0%

8:30

GBP

PPI Input m/m

-2.1%

-2.5%

10:00

EUR

German Industrial Production m/m

0.3%

-2.2%

12:30

USD

Non-Farm Employment Change

92K

69K

12:30

USD

Unemployment Rate

8.2%

8.2%

 

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About: FX Empire Analyst - Barry Norman

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