EUR/USD Monthly Fundamental Forecast October 2012

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Outlook and Recommendation

The EUR/USD lost its momentum at the end of the month as worries about Spain and Greece continued to weigh on the single currency. The pair closed that month at 1.2843. Material progress has been made in Europe. The ECB’s bond-buying program decreased the risk of a monetary union breakup, while developments on the banking union front have relieved some fears over bank solvency. Accordingly, the valuation for EUR has shifted, leading to ongoing EUR short covering. The CFTC net short position has narrowed to –US$12 billion (as of September 18th), while risk reversals suggest that the desire to protect against USD upside has faded and technicals have stabilized.

Highest: 1.3172

Lowest: 1.2502

Difference: 0.0670

Average: 1.2871

Change %: 2.26

A deceleration in global growth, progress but uncertainty in Europe and diverging central bank policy paths are the key themes that are driving markets. Artificially low volatility suggests that tail risks are low; however, rapidly shifting sentiment is fueling uneven patterns in financial markets. The outlook is for slow progress in Europe, a soft landing in China, loose G4 central bank policy and modest global growth. The most significant concerns from here are: 1) a further deceleration in the global growth outlook; 2) an escalation in the European crisis; 3) a drop in investor and business confidence; and 4) interventionary and reactive central bank policy. Our base case is more encouraging than these risks suggest.

The USD impact resulting from the Federal Reserve’s (Fed) third round of quantitative easing in an uncertain fiscal environment, while complicated by low and slowing global growth, lays the foundation for an interesting debate. On a relative basis the US economy is encouraging; however, it continues to be marked by a weak labor market, fragile consumption, only stabilization (as opposed to a recovery) in housing, and soft business confidence. Meanwhile, progress on the fiscal side has halted pending the November election, while another debt ceiling limit looms later in the fall. The lack of a credible fiscal plan and the expansion of already loose monetary policy are not conducive to a sustainably strong USD

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: ECB                         

Central Bank Name: European Central Bank

Date of next meeting or last meeting: Oct 04, 2012

Current Rate: 0.750%

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

Date

Time

Currency

Event 

Forecast

Previous

Oct 1

 8:30

GBP

Manufacturing PMI

49.5

49.5

 

14:00

USD

ISM Manufacturing PMI

50.0

49.6

Oct 2

8:30

GBP

Construction PMI

50.0

49.0

Oct 3

8:30

GBP

Services PMI

53.1

53.7

 

12:15

USD

ADP Non-Farm Employment Change

148K

201K

 

14:00

USD

ISM Non-Manufacturing PMI

53.4

53.7

Oct 4

11:00

GBP

Asset Purchase Facility

375B

375B

 

11:00

GBP

Official Bank Rate

0.50%

0.50%

 

Tentative

GBP

MPC Rate Statement

  
 

11:45

EUR

Minimum Bid Rate

0.75%

0.75%

 

12:30

EUR

ECB Press Conference

  
 

12:30

USD

Unemployment Claims

371K

359K

 

18:00

USD

FOMC Meeting Minutes

  

Oct 5

7:00

CHF

Foreign Currency Reserves

 

418.4B

 

12:30

USD

Non-Farm Employment Change

111K

96K

 

12:30

USD

Unemployment Rate

8.2%

8.1%

Oct 8

7:15

CHF

CPI m/m

 

0.0%

Oct 9

8:30

GBP

Manufacturing Production m/m

 

3.2%

Oct 11

All Day

ALL

G7 Meetings

  
 

12:30

USD

Trade Balance

 

-42.0B

 

12:30

USD

Unemployment Claims

  

Oct 12

12:30

USD

PPI m/m

 

1.7%

 

13:55

USD

Prelim UoM Consumer Sentiment

  

Oct 15

12:30

USD

Core Retail Sales m/m

 

0.8%

 

12:30

USD

Retail Sales m/m

 

0.9%

Oct 16

8:30

GBP

CPI y/y

 

2.5%

 

8:30

GBP

PPI Input m/m

  
 

9:00

EUR

German ZEW Economic Sentiment

  
 

12:30

USD

Core CPI m/m

  

Oct 17

8:30

GBP

Claimant Count Change

  
 

8:30

GBP

MPC Meeting Minutes

  

Oct 18

8:30

GBP

Public Sector Net Borrowing

  
 

8:30

GBP

Retail Sales m/m

  
 

14:00

USD

Philly Fed Manufacturing Index

  

Oct 19

14:00

USD

Existing Home Sales

  

Oct 24

7:00

EUR

French Flash Manufacturing PMI

  
 

7:30

EUR

German Flash Manufacturing PMI

  
 

8:00

EUR

German Ifo Business Climate

  
 

14:00

USD

New Home Sales

  
 

18:15

USD

FOMC Statement

  

Oct 25

12:30

USD

Core Durable Goods Orders m/m

  
 

12:30

USD

Unemployment Claims

  
 

14:00

USD

Pending Home Sales m/m

  

Oct 26

8:30

GBP

Prelim GDP q/q

  
 

12:30

USD

Advance GDP q/q

 

1.3%

Oct 30

14:00

USD

CB Consumer Confidence

  

Oct 31

12:15

USD

ADP Non-Farm Employment Change

  

 

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About:FX Empire Analyst - Barry Norman

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