EUR/USD Weekly Fundamental Analysis August 20-24, 2012, Forecast

Introduction: Out of the major currency pairs the most popular and easy to trade currency pair is the EUR/USD. It has become so popular with traders these days that even when there is no visible trade to be had it is yet traded as a matter of habit. This is of course something that should be avoided and any investor who trades this currency pair wisely can do so successfully with sizable profits at the end of the day.

The first thing with trading currencies is to realize that the EUR/USD is made up of two separate currencies although considered to be one unit when taken as a pair. The weaknesses and strengths of each currency have to be taken into consideration when trading the unit as it influences the final outcome. Another factor that is often overlooked by traders or investors is that the weakening of one currency along with the strengthening of the other currency in the pair results in the generation of pips. It is according to this that entry and exit from the Forex market has to be done in order to maintain profitability.

• The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
• Dollar strength drives EUR/USD lower
• FED intervention to weaken the dollar the sends EUR/USD higher

Weekly Analysis and Recommendation:

The EUR/USD was slightly higher for the week closing at 1.2333. The pair opened Monday at 1.2275 but traded as high as 1.2373 on Monday. Comments from Chancellor Merkel helped drive up the euro as she spoke during her meetings in Canada last week.

Spain is expected to finally ask for a bailout, but this has been going on for weeks now.

The USD was able to regain some ground after positive eco prints this week and the drop in the odds of monetary stimulus, as building permits, housing starts, unemployment and manufacturing all have printed on the positive side.

Markets continue to trade with sanguinity from the previous day, after German Chancellor Merkel backed ECB’s resolution on conditions for helping reduce borrowing costs in indebted countries and also on an upbeat U.S housing numbers. Michigan consumer confidence, shocked markets showing a strong confidence level, which is very positive for the US economy

With reports indicating at a possible release of some of its oil reserves, crude prices could come under pressure, if this report is reliable. With crisis in Europe showing no signs of backing, investors’ would be keenly following bond auctions in Italy and Spain in coming days to take a stance on the situation in Europe. Also, with Greece still on the sidelines over its cuts, Greek Prime Minister Antonis Samaras will next week hold his first meetings with Euro zone leaders since taking office in a bid to assure for more austerity measures. Market sentiments over the week have been buoyed by cheerful U.S data and on reassurance from European leaders to curb the 3-year old crisis.   

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.

Major Economic Events for the week of August 13-17, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Historical: From 2010 to Present

Highest: 1.4940 USD on May 04, 2011.

Average: 1.3434 USD over this period.

Lowest: 1.1877 USD on Jun 07, 2010.

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD