EUR/USD Weekly Fundamental Analysis July 9-13, 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 pair has fallen off a cliff. Trading at the end of the week at 1.2286 a surprise to most of the markets. The euro was forecast to trade at 1.23 by the end of the second quarter, which was delayed by false hope offered by the EU Ministers on the morning of June 29th, which rescued the euro and sent it flying by 2 cents in hours. As the week progressed, the euro remained strong. On Wednesday the US markets were closed for the Independence Day Holiday. On Thursday the much anticipated ECB rate decision and statement were due.

As expected the bank reduced its key lending rate by 25bps as markets expected, but what they did not anticipate was a reduction in deposit rates to zero as well as the negative sentiments in Draghi’s economic summary in this statement. His pessimism sent the euro tumbling. As the USD gained on the weakness of the euro, market players moved their attention to the all important make it or break it, Nonfarm report. Which was so poor, it supported the theory that the US economy had hit a stall once again. Traders now turned to excitement that the Fed’s might pull out the big guns and offer huge stimulus packages to get the economy up and running.

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 2 – 6 actual v. forecast for Euro, GPB, the Franc, and USD

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