EUR/USD Fundamental Analysis May 1, 2012, Forecast

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Analysis and Recommendations:

The EUR/USD is trading at 1.3233 having retraced Friday’s gains, at the close of the European session down 0.2%, but still trading above 1.32. European bond yields are generally stable and EUR volatility is trading near its lows at 8.4. News flow has generally been negative, with Spain entering a recession (GDP came in at ‐0.3% in Q1), S&P downgrading 11 banks and the March central bank data revealing a lack of foreign demand for Spanish debt.

As expected, S&P has downgraded 11 Spanish banks and put a further 6 on watch; while taking the opposite tact, Moody’s has announced that it views Spain’s new fiscal measures as credit positive. Meanwhile, in March Spanish banks bought €20bn in sovereign bonds, with foreign holdings falling from €245bn to €220bn. On a brighter note for EUR, the flash Eurozone CPI came in stronger than expected at 2.6% and unchanged from March, suggesting that inflationary pressures are failing to fall, even as the outlook for the economy deteriorates.

This will prove a complication for the ECB, as it will limit the central bank’s ability to cut interest rates. The balance between growth and austerity is increasingly complicated with political uncertainty rising on the back of it. In addition, as growth has disappointed there is increasing recognition that austerity cannot be the sole focus. Today there are rumors that the European Commission is planning to announce a new funding program aimed directly at growth. The resiliency of EUR is impressive.

Economic Data for April 30, 2012 actual v. forecast

KRW

 

 

 

South Korean Industrial Production (MoM) 

-3.1%

 

0.2% 

 

0.6% 

  

AUD

 

 

 

HIA New Home Sales (MoM) 

-9.4%

 

 

 

3.0% 

 

 

EUR

 

 

 

CPI (YoY) 

2.6%

 

2.5% 

 

2.6% 

 

 

EUR

 

 

 

Greek Retail Sales (YoY) 

-13.00%

 

 

 

-10.60% 

  

USD

 

 

 

Core PCE Price Index (MoM) 

0.2%

 

0.2% 

 

0.1% 

 

 

CAD

 

 

 

GDP (MoM) 

-0.2%

 

0.2% 

 

0.1% 

 

 

USD

 

 

 

Personal Spending (MoM) 

0.3%

 

0.4% 

 

0.9% 

  

USD

 

 

 

Chicago PMI 

 

 

61.0 

 

62.2 

  

Economic Events for the European and US Markets

15:00     USD                      ISM Manufacturing Index                                            53.5                        53.4

The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) rates the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories. The data is compiled from a survey of approximately 400 purchasing managers in the manufacturing industry. On the index, a level above 50.0 indicates industry expansion, below indicates contraction. 

Government Bond Auctions (this week)

Date  Time  Country 

May 01  09:30  UK 

May 02  09:10  Sweden 

May 02  09:30  Portugal 

May 02  13:00  US 

May 03  08:30  Spain

May 03  08:50  France 

May 03  09:10  Sweden 

May 03  09:30  UK 

May 08  09:15  Austria 

May 08  09:30  Belgium 

May 08  14:30  UK 

May 08  15:30  Italy  

May 08  17:00  US 

May 09  09:10  Sweden 

May 09  09:30  Germany 

May 09  09:30  Swiss 

May 09  09:30  UK 

May 09  14:30  Sweden 

May 09  15:30  Italy  

May 09  17:00  US 

May 10  15:00  US 

May 10  17:00  US 

May 11  09:10  Italy   BOT auction

May 11  10:00  Belgium

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