EUR/USD Weekly Fundamental Analysis August 27-31, 2012 Forecast
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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 closed the week at 1.2512 much higher than expected or projected. The beginning of the week saw the euro climb against the greenback on news from the ECB and plans for a bond yield cap and a bond buying program. Nothing concrete and more rumor then fact but enough to give the euro additional strength. By mid week the FOMC minutes toppled the USD, the minutes were expected to be a non event, but turned in a major market mover as markets were surprised at how supportive all members were of additional QE. By Friday rumors were at it again as it seems the ECB plans were delayed until after the court ruling in Germany on September 12th.
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Aug 20, 2012
Also traders began to rethink the surety of the FOMC now that time has passed and we are dealing with new and improved economic numbers. Mid day on Friday a letter written by Mr. Bernanke sent to Representative Issa, said that the Fed had ability and would be doing more to assist, it was just timing that was important. This letter brought back hope of Mr. Bernanke announcing QE at his Jackson Hole address next weekend. This will be the headline event of the week, globally.
In Europe next week we are looking at preliminary August inflation figures for the euro zone will be released next week. Higher food and energy costs will counteract the downward pressure on the headline print from ongoing weakness in underlying wages and costs as the regional economy sinks into recession. A renewed upswing in oil has seen the price of Brent crude climb nearly 30% over the last two months, while major droughts in the United States and around the Black Sea and a weak monsoon in India have begun to lift global agricultural prices (particularly wheat, corn, soybeans) at a disconcerting pace. We expect inflation in Germany (due out Wednesday) to pick up to 2.0% y/y from 1.9% in July. The Spanish print (Thursday) will likely rise to 2.4% y/y from 2.2%, while the Italian figure eases slightly from 3.6% to 3.5%. For the euro area overall, consumer price inflation should remain flat at 2.4% y/y, marking the fourth consecutive month at this pace. Given the temporary (i.e., weather-related) nature of the current stickiness in prices, combined with the persistent and pronounced downside risks casting a shadow over the growth outlook, we continue to anticipate another 25 basis point reduction in the European Central Bank’s main refinancing rate, possibly as early as at the next policy meeting in September.
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.
Major Economic Events for the week of August 20-24, 2012 actual v. forecast for Euro, GPB, the Franc, and USD
Rightmove House Price Index (MoM)
CBI Industrial Trends Orders
Existing Home Sales
Chinese HSBC Manufacturing PMI
German GDP (QoQ)
German GDP (YoY)
French Manufacturing PMI
German Manufacturing PMI
BBA Mortgage Approvals
CBI Distributive Trades Survey
Initial Jobless Claims
Continuing Jobless Claims
New Home Sales
Business Investment (QoQ)
Core Durable Goods Orders (MoM)
Durable Goods Orders (MoM)
Highest: 1.5091 USD on Dec 03, 2009.
Average: 1.3709 USD over this period.
Lowest: 1.19 USD on Jun 07, 2010.
Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD
Government Bond Auctions
Date Time Country
27/8 11:30 Germany
28/8 10:30 Spain
28/8 11:00 Italy
28/8 19:00 US
29/8 11:00 Italy
29/8 19:00 US
30/8 05:35 Japan
30/8 11:00 Italy
30/8 19:00 US
Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.comView all of FX Empire Analyst - Barry Norman's Articles