EUR/USD Weekly Fundamental Analysis July 16-20, 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  was weak all week, but picked up some strength on the short squeeze on Friday. The week saw mostly negative eco data in the EU but the overall negative sentiment towards the EU was disappointment over progress from the Eurogroup. After markets soared on promises from the EU Summit in June and a commitment to implement the plans by July 9th, nothing actually happened and the Eurogroup made no progress. On this note investors turned sour and withdrew their support from the euro.

Date

Last

Open

High

Low

Change %

Jul 13, 2012

1.2249

1.2189

1.2256

1.2163

0.50%

Jul 12, 2012

1.2188

1.2245

1.2245

1.2168

-0.47%

Jul 11, 2012

1.2245

1.2255

1.2296

1.2213

-0.08%

Jul 10, 2012

1.2255

1.2317

1.2334

1.2236

-0.50%

Jul 09, 2012

1.2317

1.2271

1.2324

1.2270

0.37%

This coming week there will be a great deal of data from the US with little eco risk in the EU. On Monday, July 16th, the June inflation figures for the euro area will be released. The flash CPI estimate showed inflation unchanged from May, at 2.4% y/y (implying a flat reading on a month-over-month basis), and we expect this figure to be confirmed next week.  The renewed price stickiness — the inflation rate was steady at 2.7% y/y from December through March, before falling for two months — is likely the result of a partial recovery in Brent oil prices in late June, euro weakness, and unfavorable weather conditions which could have boosted both food and energy costs. In fact, there is a possibility that the June print could be revised upward to 2.5% y/y, particularly in light of the Italian and French reports, which showed unexpected monthly price gains in June. If this stickiness persists, the European Central Bank (ECB) will have to revise its inflation outlook (the headline rate is currently expected to fall below 2% later this year and remain below target in 2013). In turn, this would likely preclude any further reduction in the key policy rate after last week’s 25 basis point cut, which brought the main refinancing rate to a record-low 0.75%.

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 July 9 – 13 actual v. forecast for Euro, GPB, the Franc, and USD

Date

Currency

 Event

Actual

Forecast

Previous

Jul 9

EUR

Sentix Investor Confidence

-29.6

-26.3

-28.9

 

GBP

BRC Retail Sales Monitor y/y

1.4%

 

1.3%

GBP

RICS House Price Balance

-22%

-15%

-17%

Jul 10

EUR

French Industrial Production m/m

-1.9%

-0.9%

1.4%

EUR

Italian Industrial Production m/m

0.8%

-0.3%

-2.0%

GBP

Manufacturing Production m/m

1.2%

0.1%

-0.8%

GBP

Trade Balance

-8.4B

-9.0B

-9.7B

GBP

NIESR GDP Estimate

-0.2%

 

0.1%

Jul 11

USD

Trade Balance

-48.7B

-48.5B

-50.6B

 

USD

Crude Oil Inventories

-4.7M

-1.3M

-4.3M

Jul 12

EUR

Industrial Production m/m

0.6%

0.0%

-1.1%

 

USD

Unemployment Claims

350K

376K

376K

USD

Import Prices m/m

-2.7%

-1.5%

-1.2%

USD

Federal Budget Balance

-59.7B

-91.7B

-124.6B

Jul 13

CHF

PPI m/m

-0.3%

-0.2%

-0.2%

USD

PPI m/m

0.1%

-0.5%

-1.0%

USD

Prelim UoM Consumer Sentiment

72.0

73.5

73.2

 

Historical:

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

Date

Time

Currency

 Event

Forecast

Previous

Jul 16

7:15

CHF

Industrial Production q/q

-7.5%

8.8%

9:00

EUR

CPI y/y

 

2.4%

12:30

USD

Retail Sales m/m

 

-0.2%

12:30

USD

Empire State Manufacturing Index

 

2.3

14:00

USD

Business Inventories m/m

 

0.4%

Jul 17

8:30

GBP

CPI y/y

 

2.8%

9:00

EUR

German ZEW Economic Sentiment

 

-16.9

9:15

ALL

G7 Meetings

   

12:30

USD

CPI m/m

 

-0.3%

13:00

USD

TIC Long-Term Purchases

 

25.6B

13:15

USD

Industrial Production m/m

 

-0.1%

Jul 18

8:30

GBP

Claimant Count Change

 

8.1K

8:30

GBP

Unemployment Rate

 

8.2%

9:00

CHF

ZEW Economic Expectations

 

-43.4

12:30

USD

Building Permits

 

0.78M

12:30

USD

Housing Starts

 

0.71M

14:30

USD

Crude Oil Inventories

 

-4.7M

Jul 19

6:00

CHF

Trade Balance

 

2.48B

8:00

EUR

Current Account

 

4.6B

8:30

GBP

Retail Sales m/m

 

1.4%

12:30

USD

Unemployment Claims

   

14:00

USD

Existing Home Sales

 

4.55M

14:00

USD

Philly Fed Manufacturing Index

 

-16.6

Jul 20

6:00

EUR

German PPI m/m

 

-0.3%

8:30

GBP

Public Sector Net Borrowing

 

15.6B

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