EUR/USD Monthly Fundamental Forecast July 2012

Outlook and Recommendation

The EUR/USD closed the quarter at 1.2662

After losing 7% in the month of May, the euro (EUR) stabilized in June as authorities made progress on the future path of the European Monetary Union. In an effort to boost growth and confidence, the ECB has cut interest rates to a new historical low of 0.75%; however, European growth and confidence remain the most significant risks for EUR. According to the CFTC, the EUR short position has been pared back from its record of $33bn to $24bn. EUR should avoid a collapse, supported by value in Germany, the looming US fiscal cliff and repatriation flows into EUR; however, the currency is expected to trend lower.

The USD’s path remains complicated driven by monetary and fiscal policy shifts and swings in risk appetite. Progress on the European front has temporarily eased market strains; however, EUR will trend lower due to poor investor sentiment, central bank policy intervention and Europe’s failure to adequately balance austerity and growth. The rest of the European currencies, except CHF, should outperform EUR

The announcement on Friday morning the 29th gave a much needed bump although artificial to the euro, encouraged by a plan devised by the Finance Ministers to build a banking supervisor the ability to tap the EFSF and ESM to provide security and liquidity to the EU.

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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Banks: FED and ECB

Central Bank Name:European Central Bank

Date of next meeting or last meeting:Jul 05

Current Rate:1.00 % (- 0.25) The ECB met at the time of this writing and held rates

Statement highlights of last meeting:Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. The information that has become available since the beginning of March broadly confirms our previous assessment. Inflation rates are likely to stay above 2% in 2012, with upside risks prevailing. Over the policy-relevant horizon, we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Survey indicators for economic growth have broadly stabilized at low levels in the early months of 2012, and a moderate recovery in activity is expected in the course of the year. The economic outlook remains subject to downside risks.

Central Bank Name:Fed Reserve

Date of next meeting or last meeting: Jul 31

Current Rate: 0-0.25 % (- 0.75)

Statement highlights of last meeting: To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

Economic events for the month of July affecting EUR, CHF and GBP