EUR/USD Weekly Fundamental Analysis March 12-16, 2012, Forecast

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Rules: 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

 

Analysis and Recommendation:

The EUR/USD is currently trading at 1.3123, hitting a high this week of 1.3278 on news of Greek bond swap participation passing the required acceptance. And then plummeting once the markets had time to review and analyze. This was followed by strong jobs reports in the US surpassing forecast. Earlier in the week when problems were mounting in Greece, the euro took a nose dive to trade at 1.3106.

The euro will find support and resistance at 1.3100 and 1.3160, and should trade this week towards the bottom of this channel. We might see news of Spain or Italy move to the front pages, along with Hungary.

This week should be a week for the markets to breathe.

Highlights of the past week

USA

The U.S. created 227,000 jobs in February and more people found work in the prior two months than previously reported, suggesting the economy’s recent momentum is likely to continue.

The unemployment rate, meanwhile, was unchanged at 8.3% as nearly half-a-million workers reentered the labor force in search of job, the Labor Department.

Household debt edged up 0.3% in the fourth quarter, the Fed reported in its flow-of-funds report, as consumer credit surged at a 7% annualized rate. Household debt had declined for 13 consecutive periods before the slender fourth-quarter advance.

The U.S. trade deficit widened sharply in January, driven higher by record imports of autos, capital goods and food, government data reported.  The trade gap expanded 4.3% in January to $52.6 billion from $50.4 billion in December.

The Fed is considering a new form of “sterilized” quantitative easing that would allow asset purchases despite high oil prices, according to a report in The Wall Street Journal. Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.

The Canadian Central Bank held rates today at 1% following the lead of banks around the world.

The Institute of Supply Management said its non-manufacturing PMI climbed to 57.3 in February from a reading of 56.8 the previous month. Economists had expected the index to decline to 56.1.

Another report showed that U.S. factory orders fell, but at a slower than forecast rate in January, declining by a seasonally adjusted 1.0%, compared to forecasts for a 1.3% slide.

Europe

The International Swaps and Derivatives Association said Friday that the Greek government’s use of collective-action clauses, or CACs, to amend to terms of Greece-issued bonds qualifies as a “credit event” for Greece. A credit event requires a payout to those who held credit default swaps as insurance to protect them in the event of a Greek default.

The Fitch ratings agency downgraded Greece to “restricted default” over the bond swap — a move that had been expected. Fitch was the third agency to downgrade Greece into default, after Moody’s and Standard & Poor’s.

The deal is done, finally. Greece finished their debt swap with private creditors. Bondholders representing some 85% of Greece’s outstanding private-sector debt, well above the government’s minimum threshold, have agreed to the swap, easing pressures on the eurozone.

Conditions are in place for Greece to get its second bailout, said Eurogroup President Jean-Claude Juncker in a statement released Friday. “I welcome the significant progress achieved in the preparation of the second Greek adjustment program,” said Juncker, after a teleconference between euro-zone finance ministers on Friday

The Bank of England announced their current rate decision which was as expected to hold rates. No new additions to their monetary easing policies announced in February.

The European Central Bank committee held lending rates at the current rate of 1% and made no comments on any additional lending policies.

Prices for Italian government bonds jumped and Spanish bonds also rose Thursday, sending yields lower on expectations Greece will successfully complete its voluntary debt swap with private investors. Italy’s 10-year bond yield fell 0.20

 German production climbed 1.6% from December. Economists were expecting an increase of 1.1% in the euro zone’s largest economy. 

In the UK, house prices fell by 0.5% in February from January and were down 1.9% in the three months to February from the same period a year ago, according to the Halifax House Price Index. Prices were down 1.1% in the latest three months to February from the previous 3-month period.

EU’s Rehn: Eurozone Currently in a Mild Recession but Signs of Improvement but, risk of credit crunch in European economy has been prevented largely due to long-term liquidity offer of ECB. The Commission supports combining remaining resources of EFSF with ESM to make sturdier European firewall.

UK services sector saw growth slow in February after the surge in January, the CIPS/Markit index shows. The headline service sector CIPS/Markit index fell to 53.8 in February from an unrevised 56.0 in January, well below analysts’ median forecast for a 55.0 outturn. The detail, however, was more encouraging showing a rise in business expectations and easing inflation pressure.

Business expectations rose to their highest level for a year while output charges declined. Markit said sales were supported by discounting, with margins squeezed as input cost continued to rise.

Spanish Prime Minister Mariano Rajoy on Friday announced a new deficit to gross domestic product target for the country of 5.8% in 2012, against a prior target of 4.4%, according to media reports. Rajoy made the comments in Brussels. Spanish media has been reporting for days that the government would raise its target.

 

Historical:

Highest: 1.5091 USD on 03 Dec 2009.

Average: 1.3709 USD over this period.

Lowest: 1.19 USD on 07 Jun 2010.

The week ahead brings a vast assortment of economic indicators. A busy week with the news dominated by the US interest rate decision and inflation data.

Monday sees data on credit card lending and debt released by the RBA in Australia.

Also we have housing finance data and new car sales figures will be released. As well as the Reserve Bank of Australia will release its March quarter bulletin.

The Bank of Japan will make its interest rate decision for March.

In Europe, European Union finance ministers are scheduled to meet.

Monday sees the United Nations economic and social council hold its annual spring meeting

The US treasury budget data will be released. 

On Tuesday, the Australian Bureau of Statistics will release housing finance data for January. National Australia Bank is due to release its business confidence and conditions index for the month of February. 

IN the US, the Federal Reserve hold its March meeting, where it will decide on the current level of interest rates in the country. Also January business inventories and February retail sales data are also due.

Also on Tuesday, The World Trade Centre committee on budget, finance and administration will hold a meeting.

Chinese Premier Wen Jiabao will hold his annual press briefing at the China National People’s Congress.

Wednesday sees the ABS release December housing starts data. Westpac Banking Corporation and the Melbourne Institute will release their consumer sentiment index for March.

In the United Kingdom, average earnings data for the three months to March will be released. Also February claimant count data and ILO unemployment rate figures for March will also be released.

Across the Atlantic US import and exports price data released, while current account balance data for the December quarter is due.

The weekly Energy Information Administration petroleum status report is also on tap, as well as weekly Mortgage Bankers Association mortgage applications data.

Wednesday afternoon sees World Bank deputy vice finance minister for international affairs Masatsugu Asakawa address a eurozone crisis conference hosted by the Asia Development Bank Institute.

US Federal Reserve chairman Ben Bernanke will speak at the 2012 Independent Community Bankers of America national convention

Thursday brings January lending finance data for the month of January in Australia also new car sales data for February is also set for release.

Elsewhere, the Melbourne Institute will release both its consumer inflation and employment expectation surveys for March.

Thursday morning delivers US jobless claims data and the February producer price index in the US.

 Along with several other releases in America including, The Philadelphia Federal Reserve survey and the US Treasury international capital data is on tap, alongside the New York Empire State Manufacturing Survey.

Friday brings highly anticipated consumer price index data for February in the US. 

The Reuters/Michigan consumer sentiment index for March and industrial production for February data will also be released.

On Saturday, the Organization for Economic Co-operation and Development will release its interim assessment.

Economic Events in Europe this week

Mar. 12

06:45

 

EUR

 

 

 

French CPI (MoM) 

  

 

08:15

 

CHF

 

 

 

PPI (MoM) 

  

 

09:30

 

GBP

 

 

 

Current Account 

  

Mar. 13

00:01

 

GBP

 

 

 

RICS House Price Balance 

  

 

08:15

 

CHF

 

 

 

Industrial Production (QoQ) 

  

 

09:30

 

GBP

 

 

 

Trade Balance 

  

 

10:00

 

EUR

 

 

 

German ZEW Economic Sentiment 

  

 

10:00

 

EUR

 

 

 

ZEW Economic Sentiment 

  

Mar. 14

09:30

 

GBP

 

 

 

Average Earnings Index +Bonus 

  

 

09:30

 

GBP

 

 

 

Claimant Count Change 

  

 

10:00

 

EUR

 

 

 

CPI (YoY) 

  

 

10:00

 

EUR

 

 

 

Industrial Production (MoM) 

  

 

10:00

 

EUR

 

 

 

Core CPI (YoY) 

  

Mar. 15

00:01

 

GBP

 

 

 

Nationwide Consumer Confidence 

  

 

08:30

 

CHF

 

 

 

Interest Rate Decision 

  

 

09:00

 

EUR

 

 

 

Employment Change (QoQ) 

  

 

09:00

 

EUR

 

 

 

ECB Monthly Report 

  

Mar. 16

08:00

 

EUR

 

 

 

French Manufacturing PMI 

  

 

08:30

 

EUR

 

 

 

German Manufacturing PMI 

  

 

09:00

 

EUR

 

 

 

Manufacturing PMI 

  

 

11:00

 

GBP

 

 

 

CBI Industrial Trends Orders 

  

 

Economic Events in the USA this week

Mar. 12

19:00

 

USD

 

 

 

Federal Budget Balance 

 

 

Mar. 13

12:30

 

USD

 

 

 

Core Retail Sales (MoM) 

 

 

 

12:30

 

USD

 

 

 

Retail Sales (MoM) 

 

 

 

18:00

 

USD

 

 

 

10-Year Note Auction 

 

 

 

18:15

 

USD

 

 

 

Interest Rate Decision 

 

 

 

18:15

 

USD

 

 

 

FOMC Statement 

 

 

Mar. 14

12:30

 

USD

 

 

 

Current Account 

 

 

 

12:30

 

USD

 

 

 

Import Price Index (MoM) 

 

 

Mar. 15

12:30

 

USD

 

 

 

Core PPI (MoM) 

 

 

 

12:30

 

USD

 

 

 

PPI (MoM) 

 

 

 

12:30

 

USD

 

 

 

Initial Jobless Claims 

 

 

 

12:30

 

USD

 

 

 

NY Empire State Manufacturing Index 

 

 

 

12:30

 

USD

 

 

 

Continuing Jobless Claims 

 

 

 

13:00

 

USD

 

 

 

TIC Net Long-Term Transactions 

 

 

 

14:00

 

USD

 

 

 

Philadelphia Fed Manufacturing Index 

 

 

Mar. 16

12:30

 

USD

 

 

 

Core CPI (MoM) 

 

 

 

12:30

 

USD

 

 

 

CPI (MoM) 

 

 

 

13:15

 

USD

 

 

 

Industrial Production (MoM) 

 

 

 

13:55

 

USD

 

 

 

Michigan Consumer Sentiment Index 

  

 

Government Bond Auction Schedule     (this week)

Mar 12  10:30  Germany  Eur 4.0bn new Sep 2012 Bubill

Mar 12  18:00  US  Auctions 3Y Notes

Mar 13  09:30  Netherlands Eur 2.5bn-3.5bn re-opened Apr 2015 DSL

Mar 13  10:10  Italy   BOT auction

Mar 13  10:30  Belgium  Auctions 3 & 12M T-bills

Mar 13  15:30  UK  Details gilt auction on Mar 22

Mar 13  18:00  US  Auctions 10Y Notes

Mar 14  10:10  Italy   BTP/CCTeu auction

Mar 14  10:10  Sweden  Auctions T-bills

Mar 14  10:30  Swiss  Bond auction

Mar 14  15:30  Sweden  Details nominal bond exchange auction on Mar 21

Mar 14  18:00  US  Auctions 30Y Bonds

Mar 15  09:30  Spain  Obligacion auction

Mar 15  09:50  France  BTAN auction

Mar 15  10.30  UK  Auctions 4.5% 2042 conventional Gilt

Mar 15  10:50  France  OATi auction

Mar 15  16:00  US  Announces auction of 10Y TIPS on Mar 22

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About:FX Empire Analyst - Barry Norman

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.com

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