EUR/USD Weekly Fundamental Analysis March 5-9, 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 trading at 1.3199 after falling from close to the 1.35 mark last week. The EUR/USD had a strong run. However, it was not always easy to pinpoint the exact reason behind the move. Early last week, the European Finance Ministers reached an agreement on a New Greek debt deal. However, the gains of the euro in the wake to this agreement were limited. In the second half of last week, EUR/USD jumped beyond the 1.3320 resistance level even as the news flow was rather thin at that stage. Nevertheless, the cross rate closed the week with a nice 300 ticks gain. 

Last week, the focus of the investment community turned away from Greece. The E(M)U Finance Ministers approved a plan that was said to put Greece on a path to reduce its government debt to 120,5 % of GDP by 2020. At first sight, one would expect the agreement to be positive for the single currency. However, the reaction of the euro after the agreement was very muted. It was clear that even with this new plan, the issue of Greek debt sustainability was not out of the way. In addition, there was still multiple event risk on the execution of this deal. So, Greece moved a bit out of the spotlights after the Eurogroup meeting, but it is understandable that there was no euphoria from currency investors. The EMU debt crisis is far from solved. At the same time, sentiment on risk remained constructive, with most major equity indices hovering near multi-month highs. EUR/USD held a sideways range in the 1.32 area during the first half of the week. On Thursday, EUR/USD tried a new up-leg and this time the pair succeeded to jump beyond the 1.3322 resistance. The better than expected German IFO release provided a good excuse for this move. At the same time less positive news headlines (EU commission forecasts) were largely ignored. The rebound even accelerated on Friday when there was no high profile news. The inverse correlation between the dollar and oil might have played a role too for the gains of EUR/USD

Only Good News from the US:

Existing home sales US existing home sales picked up unexpectedly in January, but the previous figures were downwardly revised. 

Initial jobless claims US initial jobless claims stayed unchanged in the week ending February the 18th, while the consensus was looking for an increase.

University of Michigan consumer confidence The final figure of Michigan consumer confidence for February showed a strong upward, revision from 72.5 to 75.3, while only a minor one was expected.

New home sales After increasing for four consecutive months, US new home sales dropped at the start of 2012. 

Federal Reserve Chairman Bernanke testified before the Senate, this week, the markets found his comments a bit dovish and drew conclusions that any additional QA was off the table for the time being. Although the Chairman warned that the economy was recovering, he stated it was fragile and he was still worried about jobs. Gold soared on his comments.

News from the Eurozone

This week starts off with an agreement on the Greek bailout and approval from the EU, ECB and IMF. Greece passes a major hurdle and now needs to complete their agreement with the IIF.

There are worries about the CDS swaps triggering a credit event, at first, the initial ruling ruled that there would be no credit event, but it turns out that ruling was on a very small question concerning the ECB, it seems now that now that Greece has passed the new laws so they can force bondholders to accept the agreement, it will now trigger a credit event and CDS insurance will have to payout.

The ECB, liquidity operation, although successful, loans funds to over 800 banks, in excess of 500 billion euros. Markets are now worried about the consequences.

Spain reported that they will miss their budget deficit target this year, but still remain on track for 2013.

The EU approved the next tranche for Portugal.

The G20 meeting in Mexico ended without any results with non euro nations saying that the eurozone needs to pick up their game and show their money before any others would consider participating.

The EU Summit this past week went off quietly without much in the way of announcements.

Consumer confidence European Commission’s consumer confidence improved for a second straight month in February. Consumer confidence rose from -20.7 to -20.2, marginally  weaker than expected (-20.1).

Industrial new orders  Euro zone industrial new orders rebounded by 1.9%  M/M in December, while only a moderate pick up was expected.

IFO business climate indicator The German IFO index rose for a fourth consecutive month in February. The indicator jumped from 108.3 to 109.6, while a more moderate increase was expected.

Manufacturing PMI Euro zone manufacturing PMI extended its rebound in  February, rising for a third consecutive month, but at a  slower pace.  Services PMI After three consecutive increases, euro zone services PMI fell back in February, from 50.4 to 49.4, while a  slight increase was expected.

In January, the euro zone unemployment rate rose unexpectedly. The unemployment rate jumped from an upwardly revised 10.6% (earlier reported as 10.4%) to 10.7%, while the consensus was looking for stabilization at 10.4%. Eurostat estimates that the number of people unemployed rose by 185 000 in the euro area in January, to a total level of 16.925 million. The highest unemployment rates were observed in the Spain (23.3%), Greece (19.9% in November), Ireland and Portugal (both 14.8%). The youth unemployment rate (under 25) was 21.6% in the euro zone. The euro zone unemployment rate is now at the highest level since October 1997 and is just 0.2% below its all time high, suggesting that a jump above the all-time highs is not excluded in the coming months.

News from the Far East

In Australia Prime Minister Gillard won her battle against ex Prime Minister Rudd, who is now retiring from public life.

China’s official purchasing managers’ index (PMI) rose to 51.0 from 50.5 in January.

China also signaled this week that they are considering offering assistance to the EU and the EFSF.

Japan’s unemployment rate inched up to 4.6 per cent in January from a revised 4.5 per cent in the previous month, the government said on Friday. The figure was roughly in line with economists’ forecasts.

The ministry also said January household spending fell by an inflation-adjusted 2.3 per cent year-on-year. The fall was bigger than a 0.8 per cent drop economists had expected.

Japan refrained from selling yen in the foreign-exchange market last month, according to the Finance Ministry.

The nation didn’t sell any of its currency from Jan. 30 to Feb. 27, the ministry’s month-end data posted on its website shows. The yen last week tumbled to an almost nine-month low against the dollar after the Bank of Japan on Feb. 14 unexpectedly added ¥10 trillion to an asset-purchase program and set an inflation goal of 1 percent.

 Historical:

Highest: 1.5091 USD on 03 Dec 2009.

Average: 1.3709 USD over this period.

Lowest: 1.19 USD on 07 Jun 2010.

 

Economic Events: (GMT)

Only Major Events:

Please refer to the daily forecasts for all economic data releases for each day, with details and forecast.

Mar. 07

13:15

 

USD

 

 

 

ADP Nonfarm Employment Change 

 

 

 

 

 

 

 

Mar. 08

12:00

 

GBP

 

 

 

Interest Rate Decision 

 

 

 

 

 

 

 

 

12:45

 

EUR

 

 

 

Interest Rate Decision 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Initial Jobless Claims 

 

 

 

 

 

 

 

 

13:30

 

EUR

 

 

 

ECB President Draghi Speaks 

 

 

 

 

 

 

 

Mar. 09

02:00

 

CNY

 

 

 

Chinese CPI (YoY) 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Nonfarm Payrolls 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Trade Balance 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Unemployment Rate 

 

 

 

 

 

 

 

 

1st of the month global economic data releases actual v. forecast

 

AUD

 

 

 

Building Approvals (MoM) 

0.9%

 

2.1% 

 

-1.0% 

 

 

 

AUD

 

 

 

Private New Capital Expenditure (QoQ) 

-0.3%

 

3.9% 

 

14.6% 

   

 

INR

 

 

 

Indian Trade Balance 

-14.8B

 

-11.0B 

 

-12.7B 

 

 

 

CHF

 

 

 

GDP (QoQ) 

0.1%

 

-0.1% 

 

0.3% 

   

 

GBP

 

 

 

Nationwide HPI (MoM) 

0.6%

 

0.3% 

 

-0.3% 

   

 

CHF

 

 

 

SVME PMI 

49.0

 

48.5 

 

47.3 

 

 

 

EUR

 

 

 

French Manufacturing PMI 

50.0

 

50.2 

 

50.2 

 

 

 

EUR

 

 

 

German Manufacturing PMI 

50.2

 

50.1 

 

50.1 

 

 

 

EUR

 

 

 

Manufacturing PMI 

49.0

 

49.0 

 

49.0 

 

 

 

PLN

 

 

 

Polish GDP (YoY) 

4.3%

 

4.2% 

 

4.2% 

 

 

 

GBP

 

 

 

Manufacturing PMI 

51.2

 

52.0 

 

52.0 

   

 

EUR

 

 

 

CPI (YoY) 

2.7%

 

2.6% 

 

2.6% 

 

 

 

EUR

 

 

 

Unemployment Rate 

10.7%

 

10.4% 

 

10.6% 

   

 

USD

 

 

 

Core PCE Price Index (MoM) 

0.2%

 

0.2% 

 

0.1% 

   

 

CAD

 

 

 

Current Account 

-10.3B

 

-9.6B 

 

-12.3B 

   

 

USD

 

 

 

Personal Spending (MoM) 

0.2%

 

0.4% 

 

0.0% 

 

 

 

USD

 

 

 

Initial Jobless Claims 

351K

 

353K 

 

353K 

   

 

USD

 

 

 

Continuing Jobless Claims 

3402K

 

3400K 

 

3404K 

   

 

USD

 

 

 

ISM Manufacturing Index 

52.4

 

54.6 

 

54.1 

 

 

 

USD

 

 

 

Fed Chairman Bernanke Testifies 

 

 

 

 

 

 

 

 

KRW

 

 

 

South Korean CPI (YoY) 

3.1%

 

3.5% 

 

3.4% 

 

 

 

JPY

 

 

 

Unemployment Rate 

4.6%

 

4.5% 

 

4.6% 

 

 

 

JPY

 

 

 

Tokyo Core CPI (YoY) 

-0.3%

 

-0.4% 

 

-0.4% 

 

 

 

Government Bond Auction Schedule

Mar 05  10:10  Norway  Bond auction

Mar 06  10:10  Greece  Auctions 6M T-bills

Mar 06  10:15  Austria  Bond auction

Mar 06  10.30  UK  Auctions 0.75% 2034 I/L Gilt

Mar 06  15:30  UK  Details gilt auction on Mar 15

Mar 07  10:10  Sweden  Nominal bond auction

Mar 07  10:30  Germany  Eur 4.0bn Feb 2017 Bobl

Mar 07  10.30  UK  Auctions new Sep 2017 conventional Gilt

Mar 08  16:00  US

Announces auctions of 3Y Notes on Mar 12, 10Y Notes on Mar

13 & 30Y Bonds on Mar 14

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About: FX Empire Analyst - Barry Norman

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